1. Identify one example of a risk-free bond with a 30-year maturity. Identify a corresponding risky bond for the purposes of analyzing risk structure. Be specific about the terms to maturity and the appropriate names for these two bonds. Which bond has a higher yield? Why?
2. Illustrate change in the interest rate spread using the markets the two bonds you cited in #1 using bond market diagrams for each. Each diagram should be aligned horizontally and each market diagram should be labeled for each bond you mentioned in #1. Be sure to indicate the initial equilibrium points as Point A in each diagram and clearly label the price of each bond in each market
3. suppose the economy enters a recession. Show how this affects the bonds markets you described and illustrated in #1 and #2. Be sure to indicate the initial equilibrium points as Point A in each diagram, then illustrate how the period of economic growth affects each market, labeling the new equilibrium as Point B in each diagram
4. Explain why you made the changes in your graph above. In particular why did each curve in each market shift the way that they did?
5. Using your diagrams above and the relationship between bond prices and yields, what happens to the interest rate spread between these two bonds? Why does this change occur? Explain why the curves above shifted the way that your showed in #3 and why this affects the interest rate spread in the way you illustrated