What is the formula used to solve for the spot rate, given a liquidity premium?
The formula to solve for the spot rate, given a liquidity premium is: s2 = [(1 + f(1,1)) * (1 + f(1,2))] − 1, where s2 is the spot rate, f(1,1) is the 1year forward rate in 1 year, and f(1,2) is the 1year forward rate in 2 years.