Question 1: Expectations Theory Martha is a great believer in the expectations theory of the term structure rates. She thinks that the interest rate for the bond XYZ that matures in three periods must be equal to 7%. Adam, at the same time, is a proponent of the liquidity premium theory. He believes that the correct interest rate for the XYZ is 10%. Find the liquidity premium and expected interest rate for the third year if the expected interest rate are 5% and 6% respectively. Do you think that Adam and Martha would be more likely to agree about the bond that matures in four years? Why? Explain