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Yield Curve and Bond Valuation Worksheet Action I...

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Yield Curve and Bond Valuation Worksheet Action Items: 1. Go to the Federal Reserve Web site to examine historical daily interest rates on U.S. Treasuries. 2. Scroll down to "Treasury constant maturities" and in the row "1-month" under "Nominal" click "Business day." (Direct link here) As you can see, rates on the one-month U.S. Treasury bill are provided for each business day from July 31, 2001 to the present. For this assignment you are asked to pick a business date five years ago this month. (For example, in May 2009 I would pick a business date in May 2004.) Then, using this row and the subsequent rows below it under ?Treasury Constant Maturities? determine the shape of the yield curve on that date five years ago based on the rates for the following Treasury maturities: ? 1-month ? 3-month ? 6-month ? 1-year ? 5-year ? 10-year ? 20-year ? 30-year Complete the following table: Business Date Chosen Five Years Ago June 14, 2005 1-month Nominal T-bill Rate on that Date 2.78 3-month Nominal T-bill Rate on that Date 3.01 6-month Nominal T-bill Rate on that Date 3.22 1-year Nominal T-bill Rate on that Date 3.39 5-year Nominal T-bill Rate on that Date 3.89 10-year Nominal T-bond Rate on that Date 4.13 20-year Nominal T-bond Rate on that Date 4.49 30-year Nominal T-bond Rate on that Date 4.69 Answer the following questions: 1. On your selected date was the yield curve rising, falling, or flat? What explanation(s) would you give for this shape? The yield will be upward slope rising and the interest rates should rise and mature faster. 2. Assume that two $1000 U.S. Treasury bonds were purchased at par on your selected date five years ago: 1) a 10-year T-bond and 2) a 20-year T-bond. Also assume that for each of the two bonds the reported nominal rate that you found above was the coupon rate at issuance. 1) 10 year T-bond at 4.13 2) 20 year T-bond at 4.49 Assuming semi-annual coupon payments, calculate the value of each bond today after 5 years based on the current 5-year Treasury constant maturity nominal rate for the original 10-year bond and 15-year rate (assume it is the average of the current Treasury constant maturity nominal 10- and 20-year rates) for the original 20-year bond at http://www.federalreserve.gov/releases/h15/update/. 1) Complete the following tables: 10- Year Bond Purchased for $1000 5 Years Ago Original Value $1000 Coupon Rate Current 5-Year Yield to Maturity Number of Semi-Annual Periods Current 5-Year Yield to Maturity/2 Current Value Gain or Loss on the Bond over the 5 years 20- Year Bond Purchased for $1000 5 Years Ago Original Value $1000 Coupon Rate Current 15-Year Yield to Maturity (est.) Number of Semi-Annual Periods Current 15-Year Yield to Maturity(est.)/2 Current Value Gain or Loss on the Bond over the 5 years 2) Did you gain or lose more on one bond relative to the other? Explain.,ok that will be fine.

 

Paper#11264 | Written in 18-Jul-2015

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