(a) (10 marks) The table below shows current and expected future one-year interest rates, as well...

 

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(a) (10 marks) The table below shows current and expected future one-year interest rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond. One-Year Bond Multiyear Year Rate Bond Rate 1 1% 1% 2 3% 3% 3 3% 4% 4 5% 6% 5 7% 10% 6 9% 12% (b) (5 marks) Given the same expected future interest rates, why is the yield curve from the Liquidity Premium theory above the one resulting from the Expectations theory? (a) (10 marks) The table below shows current and expected future one-year interest rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond. One-Year Bond Multiyear Year Rate Bond Rate 1 1% 1% 2 3% 3% 3 3% 4% 4 5% 6% 5 7% 10% 6 9% 12% (b) (5 marks) Given the same expected future interest rates, why is the yield curve from the Liquidity Premium theory above the one resulting from the Expectations theory?