- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 29. The Arbitrage-Free Valuation Framework
- Subject 6. 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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