In the September 13, 1996, Weekly Market Update published by Goldman, Sachs & Co., the following information was reported in various exhibits for the Treasury market as of the close of business Thursday, September 12, 1996: On-the-Run Treasuries Yield (%) Maturity 3 months 5.29 6 months 5.49 1 year 5.90 2 years 6.27 3 years 6.45 5 years 6.63 10 years 6.87 30 years 7.08 Key Off-the-Run Treasuries Issue Old 5-year Old 10-year Yield (%) 6.65% Old 30-year 6.89 7.12

a. What is the credit risk associated with a Treasury security?

b. Why is the Treasury yield considered the base interest rate?

c. What is meant by on-the-run Treasuries?

d. What is meant by off-the-run Treasuries?

e. What is the yield spread between (1) the off-the-run 10-year Treasury issue and the on-the-run 10-year Treasury issue, and (2) the off-the-run 30-year Treasury issue and the on-the-run 30-year Treasury issue?

f. What does the yield spread between the off-the-run Treasury issue and the on- the-run Treasury issue reflect?

AppendixLO1