Suppose that 1-year interest rates over next 5 years are expected to be 5%, 6%, 7%, 8% and 9%. Investor's preferences for short-term bonds and liquidity premiums for 1-year to 5-year bonds are 0%, 0.25%, 0.5%, 0.75%, and 1.0%. What is interest rate on 3-year bonds? (A) 6.0%. (B) 6.5%. (C) 6.75%. (D) 7.0%. (E) 7.25%.