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Suppose we observe the following rates: 1 R 1 = 6.8%, 1 R 2 = 7.8%, and E ( 2 r 1 ) = 6.8%.

Suppose we observe the following rates: 1R1 = 6.8%, 1R2 = 7.8%, and E(2r1) = 6.8%. 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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