What Can You Deduce About Forward Rates of Interest If

question 36

Multiple Choice

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

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

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