Forward interest rates:
A)accurately predict future spots rates because of the law of one price.
B)tend not to be good predictors of future spot rates.
C)tend to be biased downward as predictors of future spot rates when the yield curve is upward sloping.
D)tend to be biased upward as predictors of future spot rates when the yield curve is downward sloping.

Question

Quizplus · Accepted Answer

Forward interest rates are not always good predictors of future spot rates due to the presence of uncertainty and other market factors. The accuracy of forward rates as predictors can also be affected by the shape of the yield curve, but overall, they should be used with caution as a tool for predicting future interest rates.

Forward Interest Rates