1. Interest rates over the next six years are expected to be 7.0%, 7.5%, 8.0%, 8.5%, 9.0% and 9.5%. Based on the preference of investors for short-term bonds, liquidity premiums over the one year to 6-year period are as follows: 0.5%, 0.75%, 1.0%, 1.25%, 1.5% and 1.75%.

1. Calculate the interest rate on a 3-year bond. [2 marks]
2. Calculate the interest rate on a 6-year bond. [2 marks]