Year Forward Interest Rate 0.00 5% (today) 7.00% 1.00 2.00 9.00% 10.00% 3.00 4.00 11.00% 9) Assume the same forward rates as above, except now, we believe the liquidity preference theory. We believe that investors have a preference for holding short-term bonds and liquidity premiums for one-year to five-year bonds are 0%, 0.25%, 0.5%, 0.75%. Interest compounds semiannually a) What is the spot rate on a two-year bond under the liquidity preference theory? (2 pts) b) Calculate the three-year spot rate under liquidity preference theory. (2 pts) c) Compare the shape of the term structure under pure expectations theory to the one you derived using liquidity preference theory. Which one is steeper and why? (2 pts)