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rates on 10-year government bonds at http://www.federalreserve.gov/datadownload/Output.aspx?rel=H15&series=0809abf197c17f1ff0b2180fe7015cc3&lastObs=&from=&to=&filetype=csv&label=include&layout=seriescolumn and answer the following questions: A. What was the nominal rate on 10-year U.S. Treasury bonds at each of the followingdates: 1. At 04/1954: ________ 2. At 09/1976: ________ 3. At 09/1981: ________ 4. For the Latest Month: ________B. Assume that a $1000 U.S. Treasury bond was purchased at par on each of first three dates above. Also assume that for each of the three bonds the reported nominal rate that you found above was the coupon rate at issuance. Assuming semi-annual coupon payments, calculate the value of each bond after 5 http://www.federalreserve.gov/releases/h15/data.htmto determine the gain or loss on each of the three bonds after 5 years? 1. At 04/1959: ________ 2. At 09/1981: ________3. At 09/1986: ________ Which bond would you have preferred to purchase? 04/1954? ________09/1976? ________ 09/1981? ________ Why? According to the textbook’s discussion, the Fisher Equation can be expressed as Nominal Interest Rate ≈ Real Rate + Expected Inflation. The textbook further explains that the nominal interest rate on any financial instrument is a function of not only the real rate and expected future inflation, but also interest rate risk, default risk, taxability, and the lack of liquidity. Using again the Federal Reserve’s historical data on interest rates at http://www.federalreserve.gov/releases/h15/data.htm, find the following rates recorded for the latest month? _______________________ ________________________Moody’s seasoned Corporate Bonds________
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