1. The one year interest rates in the future 5 years starting from 2020 are respectively, 1%, 2%, 3%, 4% and 5%. Estimate the interest rates of the following bonds issued in 2020 using the expectations theory.

a. Two year bond

b. Three year bond

c. Four year bond

d. Five year bond

2. Draw a yield curve using above data.

3. What will happen to the yield curve if you incorporate liquidity premium theory to make estimates of future interest rates?

Answer rating: 100% (QA)

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