Business Date Chosen Five Years Ago

10.2010

1-month Nominal T-bill Rate on that Date

0.13%

3-month Nominal T-bill Rate on that Date

0.14%

6-month Nominal T-bill Rate on that Date

0.18%

1-year Nominal T-note Rate on that Date

0.23%

5-year Nominal T-note Rate on that Date

1.20%

10-year Nominal T-note Rate on that Date

2.59%

20-year Nominal T-bond Rate on that Date

3.56%

30-year Nominal T-bond Rate on that Date

3.91%

Current 5 year rate 3%

Current 10 year rate 4%

Answer the following questions:

1. On your selected date was the yield curve rising, falling, or flat? What explanation(s) would you give for this shape?

1. Assume that two U.S. Treasury securities were purchased at par ($1000) on your selected date five years ago: 1) a 10-year T-note and 2) a 20-year T-bond. Also assume that for each of the two securities 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 today after 5 years based on the current 5-year Treasury constant maturity nominal rate for the original 10-year note and a current 15-year rate (assume it is the average of the current Treasury constant maturity nominal 10- and 20-year rates) for the original 20-year bond at http://www.federalreserve.gov/releases/h15/data.htm.

10-Year Bond Purchased for $1000 5 Years Ago

Original Value

$1000. (FV)

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

PMT

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)

i

Number of Semi-Annual Periods Remaining

10 n

Current Value*

PV (What you're looking for)

Gain or Loss on the Bond over the 5 years

PV - FV