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3) Assume that the (expected) one-year interest rates over the next five years are 3%, 4%, 6%, 7%, and 8%. The interest rates on one-

3) Assume that the (expected) one-year interest rates over the next five years are 3%, 4%, 6%, 7%, and 8%. The interest rates on one- to five-year bonds are 3%, 4%, 5%, 6.5%, and 7.5%. Determine the liquidity premium for five-year bond! [Hint: Round to two decimal places!]

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