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Suppose we observe the following rates: ? 1 R 1 = 0 . 7 5 % , ? 1 R 2 = 1 . 2

Suppose we observe the following rates: ?1R1=0.75%,?1R2=1.25%, and E(2r1)=0.919%. If the liquidity premium theory of the term structure of
interest rates holds, what is the liquidity premium for year 2,L2?(Do
not round intermediate calculations. Round your answer to 3 decimal
places.)
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