- CFA Exams
- CFA Level I Exam
- Study Session 12. Fixed Income (1)
- Reading 32. The Term Structure and Interest Rate Dynamics
- Subject 5. Traditional Theories of the Term Structure of Interest Rates
CFA Practice Question
The expectations hypothesis states that the forward interest rate is the:
A. Expected future spot rate.
B. Always greater than the spot rate.
C. Yield to maturity.
Explanation: The forward rate is an unbiased estimate of the future spot rate. There is no risk premium.
User Contributed Comments 1
| User | Comment |
|---|---|
| StanleyMo | spot rate - The yield to maturity of a zero-coupon bond, usually a Treasury bond, which is used as a benchmark for other bond yields and valuations. Because a zero-coupon bond has no coupon payments, there is no reinvestment risk and, therefore, the precise yield to maturity of the bond can be known |