What Can You Deduce About Forward Rates of Interest If

Multiple Choice

What can you deduce about forward rates of interest if the liquidity-preference hypothesis of the term structure is correct?

A) The forward rate is less than investor's expectations of next year's one-year interest rate.
B) The forward rate is greater than investor's expectations of next year's one-year interest rate.
C) The forward rate is equal to investor's expectations of next year's one-year interest rate.
D) The forward rate is equal to the risk-free interest rate.