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Annual basis-point volatility (σ): 120 bps
The analyst then creates an interest rate tree, determines the expected short-term interest rate after 8 years, and calculates how long it will take the short-term interest rate to revert halfway to the long-run value. Which of the following statements would be correct for the analyst to make?
A
The expected short-term interest rate is 3.81% and the half-life is 11.6 years.
B
The expected short-term interest rate is 3.81% and the half-life is 16.7 years.
C
The expected short-term interest rate is 4.09% and the half-life is 11.6 years.
D
The expected short-term interest rate is 4.09% and the half-life is 16.7 years.