Assume today is June 20, 2011. I go back 5 years to 6/20/2006 and find the following rates (Should the date you choose not be a business day on any of these past dates then pick the rate on the next business day):

Business Date Chosen Five Years Ago

6/20/2006

1-month Nominal T-bill Rate on that Date

4.70%

3-month Nominal T-bill Rate on that Date

4.92%

6-month Nominal T-bill Rate on that Date

5.24%

1-year Nominal T-note Rate on that Date

5.23%

5-year Nominal T-note Rate on that Date

5.13%

10-year Nominal T-note Rate on that Date

5.15%

20-year Nominal T-bond Rate on that Date

5.33%

30-year Nominal T-bond Rate on that Date

5.19%

a)Complete the following tables (see example below):

10-Year Bond Purchased for $1000 5 Years Ago

Original Value

$1000

Coupon Rate (From table above at the chosen date from 5 years ago, the original 10-year Nominal T-bond Rate divided by 2 for semi-annual payments)

5.15%/2 = 2.575%

Current 5-Year Yield to Maturity (The most recent 5-year Nominal T-note Rate reported at the Fed site divided by 2 for semi-annual payments)

1.55%/2 = 0.775%

Number of Semi-Annual Periods Remaining

10

Current Value*

See below.

Gain or Loss on the Bond over the 5 years

See below.

*Current Value = PV_Bond = Coupon Payment +

PV_B =

= $25.75[9.58663801] + $1000[0.92570356]= $246.86 + $925.70= $1,172.56

I compare this value with the initial investment of $1000 at par.

20-Year Bond Purchased for $1000 5 Years Ago

Original Value

$1000

Coupon Rate (From table above at the chosen date from 5 years ago, the original 20-year Nominal T-bond Rate divided by 2 for semi-annual payments)

5.33%/2 = 2.665%

Current 15-Year Yield to Maturity (Take theaverage of the most recent 10- and 20-year Nominal T-bondRates reported at the Fed site, and then divide this average rate by 2 for semi-annual payments)

15 year average: (2.97% + 3.99%)/2= 3.48%

Semi-annual: 3.48%/2 = 1.74%

Number of Semi-Annual Periods Remaining

30

Current Value*

See below.

Gain or Loss on the Bond over the 5 years

See below.

*Current Value = PV_Bond = Coupon Payment +

PV_B =

= $26.65[23.21825346] + $1000[0.59600239]= $618.77 + $596.00= $1,214.77

I compare this value with the initial investment of $1000 at par.