Question: Current interest rate on a 4 year T-bond ( 1 R 4) 5.0% Expected interest rate on a 1 year T-bond 1 year from today

Current interest rate on a 4 year T-bond (1R4) 5.0%
Expected interest rate on a 1 year T-bond 1 year from today (2f1) 2.0 %
Expected interest rate on a 1 year T-bond 2 years from today (3f1) 3.25%
Expected interest rate on a 1 year T-bond 3 years from today (4f1) 4.00%

Required Liquidity Risk Premium:

1-year bond (l1) 0%
2-year bond (l2) 0.10%
3-year bond (l3) 0.25%
4-year bond (l4) 0.30%

Using the Liquidity Risk premium theory.

What is the current 2-year rate (1R2)? [use geometric average] (please show all steps)

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