Term Structure Theory

CFA Level II Fixed Income
#1

Under the liquidity preference theory, expected future spot rates will most likely be :
A) Less than the current forward rate.
B) Equal to the current forward rate.
C) More than the current forward rate.

ans: A
can someone help how is it A?
Exp spot rates= Forward rates + Liquidity premium
Right? So exp spot rates should be More than the current forward rate.

#2

Under liquidity preference theory, the current forward rates have the liquidity premium baked into them, not the future spot rates. Your formula should actually switch the Expected Spot Rates and the Forward Rates.