In the Vasieck (1977)model,you Are Given That $d r _ { t } = k \left( \theta - r _ { t } \right) d t + \sigma d W _ { t }$

question 1

Multiple Choice

In the Vasieck (1977) model,you are given that $d r _ { t } = k \left( \theta - r _ { t } \right) d t + \sigma d W _ { t }$ where $x = 0.5$ , $\theta = 0.06$ , $\sigma = 0.10$ ,and the current short rate of interest is $r _ { 0 } = 0.08$ .What is the expected standard deviation of the short rate of interest one year hence?

• A)0.08
• B)0.09
• C)0.10
• D)0.11

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Definitions:

Straight-Line Amortization

An alternative method of amortizing bond discounts and premiums that allocates an equal dollar amount to each interest period. It is only permitted by GAAP under specific circumstances.

Bond Payable

A long-term liability representing money owed by a company to bondholders, to be repaid at a certain date.

Fiscal Year

A one-year period that companies and governments use for financial reporting and budgeting that is not necessarily aligned with the calendar year.

Assumptions

Fundamental beliefs or statements taken for granted in the planning and decision-making process.