The current interest rate on the one-year bond is 5%. The 1-yr interes ates over the next four years are expected to be 6%,7%,8%, and 9% i.e. it+1e=6%) Given the previous interest rates, suppose you can buy a 1-year bond for $1000 and when it matures in one year, you purchase another oneyear bond. If you follow this strategy, you earn % during the first year and % during the second year. The future value of your initial investment is Now, suppose you also the option to buy a 3 -yr bond with a 7.5% yield to maturity for $1000. The future value of the investment is Suppose the liquidity premium theory holds. The liquidity premium for the 3yr bond is