Under the liquidity premium theory of the term structure of

Question

Given the following information:

Current interest rate on a 1 year T-bond (1^R1) =       2.0%

Current interest rate on a 2 year T-bond (1^R2) =       3.5%

Current interest rate on a 3 year T-bond (1^R3) =       5.5%

Current interest rate on a 4 year T-bond (1^R3) =       6.2%

Required liquidity risk premia for a:

1-year bond (l₁) = 0%

2-year bond (l₂) = 0.10%

3-year bond (l₃) = 0.30%

4-year bond (l₃) = 0.40%

Under the Liquidity Premium Theory of the term structure of interest rates, what is the expected 3-year forward rate at the beginning of year 2 (2^f3)? (Use geometric average.) Show work and carry out computations 4 decimal places