 When future rates are uncertain, it becomes harder to interpret the term structure. We know that different investment strategies with equal terminal dates must provide equal rates of return. But if in the age of uncertainty or in the world of uncertainty, we don't know the value of R2 at present. To understand this issue, we have an example where two consecutive one-year investments in zero would need to offer the same total returns as an equal-sized investment in our two years zero under the certainty world. Therefore, 1 plus R1 into 1 plus R2 should be equal to 1 plus Y2 square. So, Y2 here is the yield at the maturity means at the end of year two. What if R2 is unknown today, so how we determine the value of R2? Suppose today's rate is 5 percent, then the expected short rate for year two is equal to 6 percent. Using this value, the value of a two years zero bond will be equal to 1000 divided by 1 plus R1 into 1 plus R2 or the face value that is 1000 dollars would be divided by 1 plus Y2 square, Y2 here is the yield at the maturity. In other words, we will divide the face value with the product of 1.05 and 1.06 and the resulting value is 898.47 dollars, so that is the value of the bond at time zero. The value of one year zero then would be equal to 1000 divided by 1.05, which comes to 952.38 dollars. Now if a short-term investor wants to invest for one year, then he may have two options to work. The first is to buy the one year zero bond today at a discount rate of 5 percent means he will be buying the bond at 952.38 dollars and he needs to hold this bond till maturity locking his return at the 5 percent to get the face value of 1000 dollars and that scenario prevails in the world of seniority. Then he may have second option where he needs to buy this two years bond today and plan to sell it at the end of the first year for 943.40 dollars, here the rate to discount is the 6 percent. Then the rate of return on the two years bond we see that it is risky because it is now working in the world of uncertainty. This means that next year R2 may be less than or greater than the 6 percent rate and if the next year's interest rate or I is greater than R2 that is the 6 percent, then the price will be less than 943.40 dollars and if the next year's rate or I is greater than R2 which is now 6 percent then the price will be greater than 942.40 which is at present now. This means that actual return on the two years bond is uncertain in this particular case because we are now in this case referring to the world of uncertainty. The computation in this case ignores the element of risk short term investors ignores the long term bonds unless their expected return exceeds that of the one years bond return. This means that particular investor requires a risk to hold a long term bond and that required risk return as a liquidity premium. This liquidity premium works as a compensation for uncertain future prices for this particular short term bond holder.