What Can You Deduce About Forward Rates of Interest If

question 54

Multiple Choice

What can you deduce about forward rates of interest if the liquidity premium hypothesis of the term structure is correct?

• A) The forward rate is less than investor's expectations of next years one year interest rate.
• B) The forward rate is greater than investor's expectations of next years one year interest rate.
• C) The forward rate is equal to investor's expectations of next years one year interest rate.
• D) The forward rate is equal to the risk-free interest rate.

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Definitions:

EEG

Electroencephalogram, a test that detects electrical activity in your brain using small, flat metal discs attached to your scalp.

Brain Activity

The electrical and chemical processes occurring within the brain that are associated with various mental functions and behaviors.

Left Hemisphere

The left hemisphere of the brain is primarily involved in controlling the right side of the body and is often associated with analytical tasks, such as language processing, mathematics, and logic.

Smiling

A facial expression featuring the upward curving of the mouth, often expressing happiness, amusement, or sociability.