2. Suppose that the observed spot yield curve and implied forward rates for risk- free Zero coupon bonds are as given below:

Maturity ( years )	Yield	Forward Rate
1	1.25	---------
2	S2=	2.0516
3	2.25	f3=
4	S4=	4.6712

A) Compute the spot and forward rates that complete the table. Show your work below.

B) How do you interpret the information in the term structure based on the liquidity premium theory.