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:
a. More than 4% but less than 5%.
d. More than 5%.
A borrower who has to pay an interest rate of 8% rather than 6% due to risk spread will pay:
a. $20 more in interest annually for every $100 borrowed.
b. 33.3% higher interest in dollar terms.
c. 2% in net interest.
d. less interest in total over the life of the loan.
d. 9800. 0
please show your work, thank you.