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A One-Year Bond Has an Interest Rate of 3% and Is

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A one-year bond has an interest rate of 3% and is expected to fall to 2.5% next year and 2% in two years.The term premium for a two-year bond is 0.3% and for a three-year bond is 0.5%.What are the interest rates on a two-year bond and three-year bond according to the liquidity premium theory?


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