Question: The current 1-year interest rate is 4% and the expected 1-year rates for the next two years are 5% in one year and 6% in

The current 1-year interest rate is 4% and the expected 1-year rates for the next two years are 5% in one year and 6% in two years. There is a term premium on 2-year bonds of 0.3% and a term premium on 3-year bonds of 0.5%. What is the interest rate for a 2-year bond as calculated by the liquidity premium theory?

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