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A one- year bond currently pays 5% interest. It's expected that it will pay 4.5% next year and 4% the following year. The twominus year
A one- year bond currently pays 5% interest. It's expected that it will pay 4.5% next year and 4% the following year. The twominus year term premium is 0.2% while the three- year term premium is 0.35%. What is the interest rate on a twominus year bond according to the liquidity premium theory? A. 4.975% B. 4.75% C. 4.5% D. 4.95%
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