The one-year interest rate is 4%. The interest rate for a two-year sec
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) 0.50%. C) 1.66%. D) 0.30%.
ANSWER
D
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