Download and save the file FIN205A1.xlsx to answer this question(attached below). This file contains monthly data on yields of Australian Government Bonds and New South Wales (NSW) Treasury Bonds from January 2007 - December 2008. For questionsa - e, consider Australian Government Bonds only.

a. Pick the month you were born (please pick NOVEMBER). Draw the yield curve for that month in 2007 and 2008. Also, draw the yield curve for the month falling exactly in the middle. (For instance, if you were born in November, draw the yield curves for November 2007, May 2008 and November 2008).

b. What should be the shape of the yield curve under normal circumstances? Why?

c. Compare the shapes of the three yield curves that you have drawn. From the yield curves, can you infer anything about the market's expectation about the future of Australian economy?

d. What is the yield on 2-year bond in January 2007? Under the expectations theory, what interest rate do investors expect on a 1-year bond next year (i.e., January 2008)? Using the same method, calculate the expected interest rates on 1-year bonds for all the months of 2008.

e. How do the expected interest rates compare with the actual interest rates in 2008? Do the calculations validateot validate the expectations theory? List some possible reasons why the expectations hypothesis may not hold.

For questionsf - g, consider both Australian Government Bonds and NSW Treasury Bonds for the period January 2007 - December 2008.

f.For 3, 5 and 10 year bonds what was the average spread between Australian Government Bonds and NSW Treasury bonds? Can you provide a reason for this?

g. Draw a graph plotting the spread between Australian Government Bonds and NSW Treasury Bonds. Comment on the pattern of the spread. Can you provide an explanation for this pattern?

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Reserve Bank of Australia A 2e72c9a2110aa1288ba0f713239a30030973203a.xlsx D E F G 1 F2 RKET YIELDS - GOVERNMENT CAPITAL MARKET BONDS YIELDS - GOVERNMENT BONDS 2 Per cent per annum 3 Australian Federal Government 4 Years to Maturity 5 Date 2 yrs 3 yrs 5 yrs 10 yrs 6 Jan-2007 6.18 6.11 6.05 5.88 7 Feb-2007 6.08 6.02 5.97 5.81 8 Mar-2007 6.12 6.04 5.95 5.74 9 Apr-2007 6.25 6.19 6.11 5.91 10 May-2007 6.19 6.15 6.07 5.92 11 Jun-2007 6.40 6.39 6.34 6.20 12 Jul-2007 6.38 6.38 6.30 6.15 13 Aug-2007 6.29 6.24 6.13 5.93 14 Sep-2007 6.32 6.29 6.21 5.99 15 Oct-2007 6.58 6.56 6.45 6.17 16 Nov-2007 6.67 6.57 6.36 6.03 17 Dec-2007 6.72 6.66 6.46 6.21 18 Jan-2008 6.61 6.58 6.34 6.08 19 Feb-2008 6.82 6.75 6.50 6.29 20 Mar-2008 6.30 6.21 6.10 6.09 21 Apr-2008 6.33 6.25 6.19 6.17 22 May-2008 6.60 6.47 6.33 6.36 23 Jun-2008 6.97 6.84 6.69 6.59 24 Jul-2008 6.64 6.49 6.40 6.37 25 Aug-2008 5.83 5.74 5.77 5.86 26 Sep-2008 5.51 5.48 5.54 5.65 27 Oct-2008 4.35 4.59 4.83 5.22 28 Nov-2008 3.64 3.96 4.28 4.94 29 Dec-2008 3.07 3.43 3.72 4.22 30 31 32 33 34 35 36 37 38 39 40 41 09/17/2017 19:49:35 Page 1 H I J NSW Treasury Years to Maturity 3 yrs 5 yrs 10 yrs 6.33 6.28 6.17 6.24 6.19 6.09 6.27 6.19 6.03 6.42 6.35 6.19 6.38 6.32 6.21 6.66 6.66 6.56 6.68 6.71 6.62 6.64 6.62 6.46 6.73 6.70 6.52 6.93 6.87 6.66 7.15 7.01 6.66 7.18 7.09 6.76 6.99 6.92 6.58 7.33 7.26 6.96 6.94 6.90 6.82 6.89 6.84 6.78 7.02 6.91 6.89 7.36 7.23 7.10 7.14 7.05 7.01 6.35 6.38 6.49 6.21 6.24 6.33 5.27 5.48 5.85 4.75 5.14 5.69 4.54 4.87 5.12 Years Date 1 Date 2 Date 3 0 5.00 6.00 3.00 1 5.00 6.00 3.00 2 5.00 6.00 3.00 3 5.00 6.00 3.00 5 5.00 6.00 3.00 10 5.00 6.00 3.00 Insert relevant data above. Yield Curve 6.50 6.00 5.50 5.00 4.50 4.00 3.50 3.00 2.50 2.00 0 1 2 3 4 Date 1 5 Date 2 6 7 Date 3 8 eld Curve 5 Date 2 6 7 Date 3 8 9 10