1. You are given the following zero annual spot yields:

   1-year y₁: 3.0%

   2-years y₂: 3.5%

   3-years y₃: 4.0%

   4-years y₄: 4.5%

   Using annual compounding, what is the expected 1-year (short-term) rate of interest in two-year time, according to the liquidity preference theory?

   		5.51%
   		6.48%
   		7.50%
   		Cannot be determined.