Why must the relationship between spot rates and forward rates hold? A) Because there is an...

Why must the relationship between spot rates and forward rates hold?

A) Because there is an assumption of arbitrage-free valuation in the market.

B) Because we need a reliable yield curve to price fixed-income securities

C) Because investors require multiple methodologies to invest their savings

D) Because the law of one price does not hold in all situations

Solutions

Expert Solution

Because there is an assumption of arbitrage-free valuation in the market.

Forward rate is the expected spot rate in the period n in future

jeff jeffy answered 2 years ago

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