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Suppose we observe the following rates: 1R 1 = 13 percent, 1R 2 = 16 percent, and E( 2r 1) = 10 percent. If the
Suppose we observe the following rates: 1R 1 = 13 percent, 1R 2 = 16 percent, and E( 2r 1) = 10 percent. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2, L 2? 8.7 percent 9.1 percent 9.7 percent 10.0 percent
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