Which of the following statements about the future 1 year spot rate in a year's time, 1rs2 is correct? Note: rf2 is the 1 year forward rate. A. E(1rs2)=1rf2 on the basis of the Expectations Hypothesis. B. E(1rf2) > 1rs2 on the basis of the Liquidity Theory. C. E(1rs2) < 1rf2 on the basis of the Expectations Hypothesis. D. 1rs2 = E(1rf2) on the basis of the Liquidity Theory.
Which of the following statements about the future 1 year spot rate in a year's time, 1rs2 is correct? Note: rf2 is the 1 year forward rate. A. E(1rs2)=1rf2 on the basis of the Expectations Hypothesis. B. E(1rf2) > 1rs2 on the basis of the Liquidity Theory. C. E(1rs2) < 1rf2 on the basis of the Expectations Hypothesis. D. 1rs2 = E(1rf2) on the basis of the Liquidity Theory.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Which of the following statements about the future 1 year
spot rate in a year's time, 1rs2 is correct? Note: rf2 is the 1
year forward rate.
A. E(1rs2)=1rf2 on the basis of the Expectations Hypothesis.
B. E(1rf2) > 1rs2 on the basis of the Liquidity Theory.
C. E(1rs2) < 1rf2 on the basis of the Expectations Hypothesis.
D. 1rs2 = E(1rf2) on the basis of the Liquidity Theory.
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