Suppose we observe the following rates: 1R1 = 4.1%, 1R2 = 4.9%, and E(21) = 4.1%. If the liquidity premium theory of the term struc of interest rates holds, what is the liquidity premium for year 2? (Round your intermediate calculations to 5 decimal places and fi percentage answer to 2 decimal places. (e.g., 32.16)) Liquidity premium for year 2 %

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Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.