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Finance Question: Suppose we observe the following rates: R 1 1 = 1 5 . 0 % , R 2 1 = 1 8 .

Finance Question: Suppose we observe the following rates: R11=15.0%,R21=18.0%, and E(r12)=21.0%. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2?

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