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(a) Given the information pure expectation theory, and (i) liquidity theory. estimate the forward rate for year 2 based on (i) (12 marks) (b)

  

(a) Given the information pure expectation theory, and (i) liquidity theory. estimate the forward rate for year 2 based on (i) (12 marks) (b) Critically argue why a yield curve is more likely to have an upward slope under liquidity theory. (7 marks) (c) Critically discuss the following statement: "An upward-sloping yield curve persists because many investors stand ready to jump into the stock market." Maturity Yield Liquidity Premium 1 year 0.26% 2 years 0.64% 0.08%

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