$7.$ Suppose you observe in the Wall Street Journal that the yield curve is flat. The Expectations Hypothesis and the Liquidity Preference Theory may or may not hold.

Which of the following must be true?

A$)$ The forward rate in Year $2$ is equal to the expected future short$-$term rate in Year $2.$

B$)$ Under the Liquidity Preference Hypothesis, short$-$term interest rates are expected to stay the same in the future.

D$)$ None of the above

C$)$ The forward rate in Year $3$ must be higher than the forward rate in Year $2.$