What is the liquidity premium for year two

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Suppose we observe the following rates: 1R1 = 8 percent, 1R2 = 10 percent, and E(2r1) = 8 percent. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2, L2? 1.02 percent 4.04 percent 6.15 percent 12.03 percent

Reference no: EM131589646

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