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Short-term (one-year) interest rates over the next 3 years are 3.0%, 3.5%, 4.0%. A liquidity premium of 15 basis points is required for each year
Short-term (one-year) interest rates over the next 3 years are 3.0%, 3.5%, 4.0%. A liquidity premium of 15 basis points is required for each year of a bonds maturity. Assume the liquidity premium theory of the term structure holds. What is the interest rate on a 3-year bond?
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