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Yield Curve and Bond Valuation Worksheet Action Items:
1. Go to the http://www.federalreserve.gov/releases/h15/data.htm to examine historical daily interest rates on U.S. Treasuries. 2. Scroll down to "Treasury constant maturities" and in the row "1month" under "Nominal" click "Business day."
As you can see, rates on the onemonth 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 January 2012 I would pick a business date in January 2007.)
Then, using this row and the subsequent rows below it under âTreasury Constant Maturitiesâ determine the shape of the yield curve (See Figure 6.11in the textbook for examples of Treasury yield curves) on that date five years ago based on the rates published by the Fed by completing the table below for the listed Treasury maturities (see example below):
Business Date Chosen Five Years Ago:
1month Nominal Tbill Rate on that Date:
3month Nominal Tbill Rate on that Date:
6month Nominal Tbill Rate on that Date:
1year Nominal Tnote Rate on that Date:
5year Nominal Tnote Rate on that Date:
10year Nominal Tnote Rate on that Date:
20year Nominal Tbond Rate on that Date:
30year Nominal Tbond Rate on that Date:
Answer the following questions:
3. On your selected date was the yield curve rising, falling, or flat? What explanation(s) would you give for this shape:
Assume that two U.S. Treasury securities were purchased at par ($1000) on your selected date five years ago: 1) a 10year Tnote and 2) a 20year Tbond. Also assume that for each of the two securities the reported nominal rate that you found above was the coupon rate at issuance.
Assuming semiannual coupon payments, calculate the value of each bond today after 5 years based on the current 5year Treasury constant maturity nominal rate for the original 10year note and a current 15year rate (assume it is the average of the current Treasury constant maturity nominal 10 and 20year rates) for the original 20year bond at http://www.federalreserve.gov/releases/h15/data.htm.
Complete the following tables (see example below):
10Year Bond Purchased for $1000 5 Years Ago
Original Value 
$1000 
Coupon Rate (From table you completed above at the chosen date from 5 years ago, the original 10year Nominal Tbond Rate divided by 2 for semiannual payments) 

Current 5Year Yield to Maturity (The most recent 5year Nominal Tnote Rate reported at the Fed site divided by 2 for semiannual payments) 

Number of SemiAnnual Periods Remaining 
10 
Current Value* 

Gain or Loss on the Bond over the 5 years 
20Year Bond Purchased for $1000 5 Years Ago
Original Value 
$1000 
Coupon Rate (From table you completed above at the chosen date from 5 years ago, the original 20year Nominal Tbond Rate divided by 2 for semiannual payments) 

Current 15Year Yield to Maturity (Take the average of the most recent 10 and 20year Nominal Tbond Rates reported at the Fed site, and then divide this average rate by 2 for semiannual payments) 

Number of SemiAnnual Periods Remaining 
30 
Current Value* 

Gain or Loss on the Bond over the 5 years 
*Current Value = PV_{Bond} = Coupon Payment +
b) Did you gain or lose more on one bond relative to the other? Explain.
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