Suppose that an investor disagrees with market expectations and feels that the forward rate prevailing in the market is higher than what it should be, then the investor can make profit by:
A) selling a bond now and buying it up later.
B) selling a bond now.
C) buying a bond now.
D) buying a bond now and selling it later.

Question

Quizplus · Accepted Answer

If the investor believes the forward rate is higher than it should be, it implies they expect future interest rates to be lower than what the market expects. Buying a bond now and selling it later would be profitable because bond prices increase as interest rates decrease.

Suppose That an Investor Disagrees with Market Expectations and Feels