Consider three different US Treasury securities with maturities T = 1, 2 and 3 years, all with principal of $100. As usual convention, today is time t=0.

One year Treasury bill trades at price 1 = $97. Zero-rate: 3.093%

Two year Treasury note which pays 4% coupon annually, trades at 2 = $100.60. Zero-Coupon Bond Price = $93. Zero-rate: 3.6952%

Three year Treasury note which pays 5% coupon 5% annually, trades at 3 = $101.90. Zero-Coupon Bond Price = $88. Zero-rate: 4.354%

(1) Compute one period forward rates at times T = 1, 2 and 3 years. Assume that the price of 4 year zero coupon bond is $0.82.

(2) You think interest rates are lower today than they will be in the future. What interest rate can you lock in today for borrowing on year two? (Assume you only want to borrow for a period of 2 years)