Which of the Following Statements About the Binomial Interest Rate

question 9

Multiple Choice

Which of the following statements about the binomial interest rate derivative pricing model is INCORRECT?

• A) The binomial interest rate derivative pricing model assumes that the markets are competitive.
• B) The binomial interest rate derivative pricing model assumes that there is no credit risk.
• C) The binomial interest rate derivative pricing model requires as many bonds trading in each period as the number of periods in the entire tree.
• D) In its most general form,the branches in a binomial interest rate tree do not recombine.
• E) The binomial interest rate derivative pricing model imposes a structure on the evolution of zero-coupon bond prices.

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Definitions:

Blocking

A method in experimental design to reduce variance by grouping experimental units with similar characteristics together and then randomly assigning treatments within these groups.

Average Prices

The mean value of a set of prices, calculated by adding all the prices together and dividing by the number of prices.

Supermarket Chains

Large retail organizations that own and operate multiple supermarket outlets, offering a wide range of food and household products.

Incentive

Something that motivates or encourages an individual or group to act or perform in a certain way.