The following table summarizes current prices of various default-free bonds with different maturities. Interest is paid semi-annually. Year to Maturity Coupon Rate (%) Spot price () 0.5 0.0 96.15 1.0 0.0 92.19 1.5 8.5 99.45 2.0 9.0 99.64 3.1 Compute the yield to maturity (YTM) and the theoretical spot rate for each of the four bonds. Under the pure expectations theory, compute the forward rate on the six-month default- free bond six months from now. (6%) 3.2 As listed below, there are three main theories that explain the term structure of interest rates. Explain what they are and compare and contrast these theories. You are also required to critically discuss how each of them could explain the yield curve above. Your discussion will benefit from the inclusion of appropriate academic references. Pure expectations (unbiased) Liquidity preference (term premium) Market segmentation . +