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Suppose we observe the following rates: R1 1=0.60%, R21=1.25%, and E(r12)=0.933% . If the liquidity premium theory of the term structure of interest rates holds,
Suppose we observe the following rates: R1 1=0.60%, R21=1.25%, and E(r12)=0.933% . 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)
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