Question: The table below shows current one - year interest rate and current interest rates on multi - year bonds. Assume that the liquidity premium theory

The table below shows current one-year interest rate and current interest rates on multi-year
bonds. Assume that the liquidity premium theory is the correct theory of the term structure. The
liquidity premium for the 2-year bond is 0.5% and the liquidity premium for the 3-year bond is
1.0%. What is the 1-year interest rate that is expected to prevail in year 2? What is the 1-year
interest rate that is expected to prevail in year 3?
The table below shows current one-year interest rate and current interest

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