3. 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?