1.The one year interest rates in the future 5 years starting from 2020 are respectively, 1%, 2%, 3%, 4% and 5%.Estimate the interest rates of the following bonds issued in 2020 using expectations theory.

i.Two year bond =

ii.Three year bond=

iii.Four year bond=

iv.Five year bond=

b.Draw a yield curve using above data.

c.What will happen to the yield curve if you incorporate liquidity premium theory to make estimates of future interest rates?