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Basic Question 2 of 9

In the binomial interest rate tree, if i1, L is 2%, and the assumed volatility of the one year rate is 20%, i1, H is:

A. 2.4%
B. 2.44%
C. 2.98%
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User Contributed Comments 4

User Comment
yuriy The tree is a set of possible interest rate paths that are used to value bonds with a binomial model.
ashish100 Can some explain how to calculate that? Thank you.
ashish100 (.4 2nd ln ) * 2
davidt87 just to clarify ashish means 0.02. dunno why you guys like switching between decimals and non decimals to represent percentages
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I was very pleased with your notes and question bank. I especially like the mock exams because it helped to pull everything together.
Martin Rockenfeldt

Martin Rockenfeldt

Learning Outcome Statements

describe a binomial interest rate tree framework;

CFA® 2025 Level II Curriculum, Volume 4, Module 27.