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The one-year interest rate is 4%. The interest rate for a two-year security is 6%. The one-year interest rate one year from now is 8.34%.

The one-year interest rate is 4%. The interest rate for a two-year security is 6%. The one-year interest rate one year from now is 8.34%. According to the liquidity preference theory, the risk premium for the second one-year investment is

a. 0.34%. b. 1.66%. c. 0.30%. Correct d. 0.50%.

Please explain step by step how to get to the correct answer of .30%.

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