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They affect the

interest rates
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Here,
t+1r1 = forward rate = market
forecast of the future interest
rate.
I = quoted interest rate
R = anticipated interest rate
Suppose ti1 = 8% and ti2 = 10%

Here,
t+1r1 = forward rate = market
forecast of the future interest
rate.
Suppose,
t i1 = 8% and t i2 = 10%
LP2 (liquidity premium on a
two-years security) = .5%
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