Scenario:

Supposs that currently one-year pure-discount bonds yield 2.2% and two-year bonds yiled 2.8%.

Question:

Calculate the the forward rate (yield for a one year bond) to be issued next year. If you believe the "pure expectations model", what do predict will be the one-year rate next year? If instead you believe in the "liquidity preference model", would your prediction for next year be higher or lower than the "pure expectaions model" answer? Explain