A recent edition of The Wall Street Journal reported interest rates of 3.867 percent, 3.845 percent, 3.821 percent, and 3.638 percent for two-year, three-year, four-year, and five-year Treasury notes, respectively. Calculate the expected one-year rates for years 3,4, and 5
(i.e., E(ari), E(ari), and E(sri)), respectively, according to the Liquidity Premium Theory.
Assume that L = 2*(N-1)*0.02%, where N denotes that term of maturity of the bond!