Go the St. Louis Federal Reserve web site at www.stls.frb.org and follow the “FRED^®/Data” link and the “Interest Rates” link. You will find a list of links for different historical interest rates. Follow the “10- Year Treasury Constant Maturity Rate” link and you will find the monthly 10- year Treasury note interest rates. Calculate the average annual 10-year Treasury interest rate for 1999 and 2000. Compare this number to the long-term government bond returns and the U.S. Treasury bill returns found in Table 12.1. How does the 10-year Treasury interest rate compare to these numbers? Do you expect this relationship to always hold? Why or why not?

Table 12.1

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Date 12/31/26 12/31/27 12/31/28 13.76 35.70 45.07 12/31/29 -8.80 12/31/30 -25.13 12/31/31 -43.60 12/31/32 12/31/33 12/31/34 12/31/35 12/31/36 12/31/37 12/31/38 12/31/39 12/31/40 12/31/41 12/31/42 12/31/43 12/31/44 12/31/45 12/31/46 12/31/47 Large- Company Stocks 12/31/48 12/31/49 12/31/50 12/31/51 12/31/52 12/31/53 -8.74 52.94 -2.31 46.79 32.49 -35.46 31.63 -1.43 -10.36 -12.02 20.75 25.38 19.49 36.20 -8.42 5.05 4.99 17.80 30.05 23.79 18.39 -1.07 Long-Term Government Bonds 6.40 0.18 0.18 5.66 4.16 0.41 5.61 5.92 5.95 3.22 1.73 4.63 4.74 2.26 4.25 1.56 1.82 2.00 2.28 5.23 0.54 -0.93 2.62 4.53 -0.92 -0.14 2.42 2.32 U.S. Treasury Bills 4.40 4.21 4.87 6.05 3.72 2.63 2.95 1.66 1.04 0.29 0.15 0.44 0.07 0.00 0.00 0.07 0.36 0.36 0.36 0.36 0.43 0.57 0.99 1.12 1.25 1.51 1.76 1.93 Consumer Price Index -1.12 -2.26 -1.16 0.58 -6.40 -9.32 -10.27 0.76 1.52 2.99 1.45 2.86 -2.78 0.00 0.71 9.93 9.03 2.96 2.30 2.25 18.13 8.84 2.99 -2.07 5.93 6.00 0.75 0.75