- CFA Exams
- CFA Exam: Level II 2021
- Study Session 12. Fixed Income (1)
- Reading 32. The Term Structure and Interest Rate Dynamics
- Subject 6. Modern Term Structure Models

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**CFA Practice Question**

The short interest rate is mean reverting in the Vasicek model. This means:

B. Rates are close to the mean.

C. The average of short rates is its mean.

A. Rates revert to a long-time level.

B. Rates are close to the mean.

C. The average of short rates is its mean.

Correct Answer: A

It assumes the economy has a constant long-run interest rate that the short-term interest rate converges to over time. The CIR model assumes this too.

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