Question: QUESTION 2: 17 POINTS (1) Complete the table. Show calculations for each value you fill in to earn full credits. (12 points) Year One- Year

QUESTION 2: 17 POINTS (1) Complete the table. Show calculations for

QUESTION 2: 17 POINTS (1) Complete the table. Show calculations for each value you fill in to earn full credits. (12 points) Year One- Year Bond Rate 1 | 1% Multiyear Bond Multiyear Bond Rate predicted | liquidity premium Rate predicted by by Liquidity Premium The- Expectation Theory ory 2% 1% 2% 1.5% 5% | 2.5% 5% | 2.5% 35% (2) Plot the yield curve predicted by the liquidity premium theory and the yield curve predicted by the expectations theory. Label the area that represents liquidity premium in your plot. Label axes and curves to earn full credit. (5 points)

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