9. In this chapter, we discussed using expectations theory to find expected future interest rates, but we only discussed estimating expected rates covering a one-year period. However, the process can be generalized to estimate future interest rates over multi-year periods. Use the date in Figure 3-7 for April 2004 to estimate the expected annualized interest for a two-year security that starts three years in the future. (Hint: this security spans years four and five and the figure contains current rates for three- and five-year securities.)

Figure 3-7

One-year Treasury Bill May 2000 6.33% April 2004 1.53%

Two-year Treasury note May 2000 6.81% April 2004 2.21%

Three-year Treasury note May 2000 6.77% April 2004 2.74%

Five-year Treasury note May 2000 6.69% April 2004 3.52%