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Suppose we observe the following rates: ? 1 R 1 = 0 . 9 5 % , ? 1 R 2 = 1 . 4

Suppose we observe the following rates: ?1R1=0.95%,?1R2=1.45%, and E(2r1)=0.927%. If the liquidity premium theory of
the term structure of interest rates holds, what is the liquidity premium for year 2,L2?
Note: Do not round intermediate calculations. Round your percentage answer to 3 decimal places (i.e.,0.12345 should be entered
as 12.345).
Liquidity premium
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