1.Download the data on prices and coupon rates for 6 government bonds maturing in consecutive six-month intervals. The first payment of each of these bonds should come in approximately 6 months. For example, if today's date is March 2^nd, 2016, the first bond should mature on August 31^st, 2016, the second on February 28^th of 2017, and so on. [1]

Use WSJ website to download bond quotes:

http://www.wsj.com/mdc/public/page/2_3020-treasury.html

2.Convert price quotes into the actual prices (multiply by 10).

3.Convert annual coupon rates into the actual semi-annual coupons, expressed in dollars.

4.Show the cash flow table (time line) for your bonds. This table should organize each payment of each bond according to the time when it will be paid.

5.Using the same bootstrapping method as in the example on pages 8--10 of your Review of Bond Concepts handout, calculate the first six rates of the term structure of interest rates.

a.Show equations which you used to find each of the six rates with the data plugged into them (use Insert - Equation in Word to type your equations).

b.Present annualized rates.

6.Using Excel Chart menu, "draw" the graph of the term structure: time on the horizontal axis, corresponding term structure rates on the vertical axis. Is it increasing or decreasing?

1. Briefly explain your findings: Comment on the implications of the observed term structure for the economic conditions as perceived by market participants.

In the report for the second empirical part of this LE, show price conversion (the actual price of the bond for the actual $1000 of face value), coupon calculations (i.e. from the coupon rate to the dollar amount), cash flow table (i.e time line), all your calculations for the term structure rates, graph of the term structure and explanations. Report (including all equations) should be typed.

[1] Notice that bonds that mature on March 15^th and September 15^th of any year are not a good choice here since all of them will pay coupons on March 15^th 2016 (i.e. 13 days from now and not six months).