Bond S1 has one year to maturity and a coupon rate of 5%. Bond S2 has two years to maturity and a coupon rate of 0%. Bond S3 has three years to maturity and a coupon rate of 3%. The effective interest rates for S1, S2 and S3 are 4.3%, 4.0% and 3.8%, respectively.

Why are both bonds S2 and S3 sub-bond bonds? Find the price of each of the three bonds. What is the one-year spot rate and what is the two-year spot rate? Given that the expectation hypothesis holds, what does the market expect the one-year interest rate to be in one year?