Estimating forward rates from the spot rate curve is based on the assumption that the ____ hypothesis accurately describes the shape of the yield curve.
A) Expectations
B) Liquidity preference
C) Segmented market
D) Efficient market
E) None of the above

Question

Quizplus · Accepted Answer

Estimating forward rates from the spot rate curve assumes that the yield curve reflects market participants' expectations of future interest rates. This is known as the expectations hypothesis. The other options, liquidity preference, segmented market, and efficient market, do not directly relate to the estimation of forward rates.

Estimating Forward Rates from the Spot Rate Curve Is Based