Table $1$ lists the YTM for a one year bond purchased today, the expected YTM for a one year bond

purchased next year and the expected YTM for a one year bond purchased in two years.

Table $2$ shows the liquidity premium for holding a two year bond purchased today and a three year bond

purchased today.

Table $1$

Table $2$

Use the above Tables to determine if the following statement is TRUE, FALSE or UNCERTAIN. You

must justify vour answer mathematically to receive credit.

"According to the liquidity premium theory of term structure, if investors believe that future short term

interest rates are expected to stay constant, then the yield curve will be upward sloping.

Please graph it$.$