If Liquidity Influences the Yield Curve, but Is Not Considered

question 71

Multiple Choice

If liquidity influences the yield curve, but is not considered when deriving the forward interest rate, the forward interest rate ____ the market's expectation of the future interest rate.

• A)overestimates
• B)accurately estimates
• C)underestimates
• D)is an unbiased forecast of (it has an equal chance of overestimating or underestimating)

---

Definitions:

Residual Value

Residual value is the estimated value of a fixed asset at the end of its useful life, reflecting what it can be sold for or its salvage value.

Financial Reporting

The process of producing statements that disclose an organization's financial status to management, investors, and government entities.

GAAP

Generally Accepted Accounting Principles (GAAP) are a set of rules and standards used in the United States for financial reporting, providing guidelines on how financial statements should be prepared and disclosed.

IRS

The Internal Revenue Service, a U.S. government agency responsible for tax collection and enforcement of tax laws.