if Suppose the expected 1-year spot rate in one year is only 7%, and the 2-year spot rate is 7.5%, then under the liquidity theory the 2-year liquidity premium is: answer: 2-year spot rate=7.5%=(6%+7%)/2+2-year liquidity premium 2-year liquidity premium=7.5%-6.5%=1% I am very confused. why imply add them up instead of compounding? Thanks.