You are given the following information on spot rates (i.e. zero coupon bonds) for different terms:

Term	Term (maturity) component (annually compounded)	Defaults per 1000	Recovery on default	Inflation
1	0.50%	20	80%	2%
5	2.00%	10	50%	2%
10	3.50%	5	40%	2%
20	4.00%	20	20%	2%
25	6.00%	25	0%	2%

1. Calculate the effective annual spot rate for each term including defaults and recovery. [10 Marks]
2. Calculate the default component of the spot rate for each term. [6 Marks]
3. Calculate the gross spot rate for each term including default and inflation [6 marks]
4. State which type of yield curve to the gross spot rates form, and explain why. If the 1 year term component was 2.5%, what type of yield curve would the gross spot rates form and why? [4 Marks]