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Basic Question 0 of 7
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:
B. 2.44%
C. 2.98%
A. 2.4%
B. 2.44%
C. 2.98%
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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Learning Outcome Statements
describe the process of calibrating a binomial interest rate tree to match a specific term structure;
describe the backward induction valuation methodology and calculate the value of a fixed-income instrument given its cash flow at each node;
compare pricing using the zero-coupon yield curve with pricing using an arbitrage-free binomial lattice;
CFA® 2026 Level II Curriculum, Volume 4, Module 27.