Short term (one year) interest years over the next 6 years will be 1.4, 0.9, 1.2, 1.2, 2.7, and 1. Assume that the investors prefer holding short-term bonds so that liquidity premium of 10 basis points is required for each year of bond maturity. Using the liquidity premium theory, what will be the interest rates on 5-year bonds?

Fig: 1