Question: If a one-year bond currently yields 4% and is expected to yield 6% next year, the liquidity premium theory suggests the yield today on a

If a one-year bond currently yields 4% and is expected to yield 6% next year, the liquidity premium theory suggests the yield today on a two-year bond will be. Please show the work/equation used.

A. More than 4% but less than 5%.

B. 5%.

C. 4%.

D. More than 5%.

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