a. Discuss how each of the following theories for the term structure of interest rates could explain an upward slope of the yield curve:
(i) Pure expectations (unbiased)
(ii) Liquidity preference (term premium)
(iii) Market segmentation
The following are the current coupon yields to maturity and spot rates of interest for six U.S. Treasury securities. Assume all securities pay interest annually.

b. Compute, under the pure expectations theory, the two-year implied forward rate three years from now, given the information provided in the preceding table. State the assumption underlying the calculation of the implied forwardrate.

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YIELDS TO MATURITY AND SPOT RATES OF INTEREST Spot Rate of Interest 5.25% 5.79 6.19 6.51 7.10 7.67 Current Coupon Yield to Maturity Term to Maturity 5.25% 1-year Treasury 2-year Treasury 3-year Treasury 5-year Treasury 10-year Treasury 30-year Treasury 5.75 6.15 6.45 6.95 7.25