Question 3 A. The table below shows current and expected future one-year interest rates. i) Calculate the interest rates on multi year bonds based on expectation theory. (20 marks) ii) Assume that the liquidity premiums for one-to five-year bonds are 0%, 0.25%, 0.5%, 0.75% and 1.0%, respectively. Based on liquidity premium theory, determine the return an investor will require for a 5-year bond. (10 marks) Year One-Year Bond Rate Multiyear Bond Rate 2% 1 2 3 4 5 5% 7% 8% 10%