Assume that interest rates on one-year bonds for the next six years are expected to be 3%, 3.5%, 4.5%,

5.5%. 6.25%, and 7.75%. Assume, furthermore, that the liquidity premium for investors to hold bonds with maturities longer than one year are 0.4% for the 2-year bond, and 0.8%, 1.2%, 1.4%, and 1.8%, respectively, for bonds with maturities ranging from 3 to 6 years. What is the interest rate on a 4-year bond, according to the Expectations Theory? Please show your work.

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