The expectations hypothesis states that the forward interest rate is the:
I. expected future spot rate
II. always greater than the spot rate
III. yield to maturity
A) I only
B) II only
C) III only
D) II and III only

Question

Quizplus · Accepted Answer

The expectations hypothesis states that the forward interest rate is equal to the expected future spot rate, which corresponds to option I only. Option II and III are incorrect as the hypothesis does not state that the forward rate is always greater than the spot rate or equivalent to the yield to maturity.

The Expectations Hypothesis States That the Forward Interest Rate Is