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The 1-year rate is currently 2%, and the expected 1-year rate a year from now is 1%. If the liquidity preference theory holds and the

The 1-year rate is currently 2%, and the expected 1-year rate a year from now is 1%. If the liquidity preference theory holds and the liquidity premium for the 2-year rate is 0.5%, what should the 2-year rate be? (Assume that the liquidity premium for the 1-year rate is 0.0%) Please express your answer in percent rounded to the nearest basis point.

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