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Liquidity Premium Hypothesis Suppose we observe the following rates: 1 R 1 = 8%, 1 R 2 = 10%, and El2r 1) = 8%. If

Liquidity Premium Hypothesis Suppose we observe the following rates: 1 R 1 = 8%, 1 R 2 = 10%, and El2r 1) = 8%. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2, L 2? 01.02% 04.04% O 6.15% 12.03%

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