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One year interest rate is 1.58%. Two years rate is 1.68%. three years rate is 1.70%. five years rate is 1.74%. Use the pure expectations

One year interest rate is 1.58%. Two years rate is 1.68%. three years rate is 1.70%. five years rate is 1.74%.

Use the pure expectations theory to find the interest rate expected on a two-year bond one year from now?

If the investors attach liquidity premiums of 0.002, 0.0015 and 0.0016 to the one-, two- and three-year bonds what would be the interest rate on a two-year security?

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