2. Suppose the data on today's and future expected interest rates is given: Time Today 1 year from today 2 years from today 3 years from today Expected I- Year Treasury yield 2.5% 3.5% 4% 4.5% a) Calculate today's interest rates on 2-year, 3-year and 4-year bonds using the expectations hypothesis. Use these yields to construct a yield curve and plot it. What kind of shape does it have? b) Now, suppose term premiums for 2-year, 3-year and 4-year bonds are 0.2%, 0.4% and 0.8%, respectively. Recalculate today's interest rates on 2-year, 3-year and 4-year bonds using the liquidity premium theory. Use the yields to plot the yield curve on the same graph as expectations hypothesis yield curve. What do you notice? 2. Suppose the data on today's and future expected interest rates is given: Time Today 1 year from today 2 years from today 3 years from today Expected I- Year Treasury yield 2.5% 3.5% 4% 4.5% a) Calculate today's interest rates on 2-year, 3-year and 4-year bonds using the expectations hypothesis. Use these yields to construct a yield curve and plot it. What kind of shape does it have? b) Now, suppose term premiums for 2-year, 3-year and 4-year bonds are 0.2%, 0.4% and 0.8%, respectively. Recalculate today's interest rates on 2-year, 3-year and 4-year bonds using the liquidity premium theory. Use the yields to plot the yield curve on the same graph as expectations hypothesis yield curve. What do you notice