Part I: Go to the Federal Reserve's Web site to examine historical monthly interest rates on 10-year government bonds at http://www.federalreserve.gov/datadownload/Output.aspx?rel=H15&series=0809abf197c17f1ff0b2180fe7015cc3&lastObs=&from=&to=&filetype=csv&label=include&layout=seriescolumn 

and answer the following questions:

A. What was the nominal rate on 10-year U.S. Treasury bonds at each of the following

dates:

1. At 04/1954: ___2.29_____ 2. At 09/1976: ___7.59_____ 3. At 09/1981: ___15.32_____ 4. For the Latest Month: __2.58______ 

B. Assume that a $1000 U.S. Treasury bond was purchased at par on each of first three

dates above. Also assume that for each of the three bonds 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 after 5

years based on the then 5-year nominal rates on U.S. Treasuries available at

http://www.federalreserve.gov/releases/h15/data.htm

to determine the gain or loss on each of the three bonds after 5 years?

  1. At 04/1959: ________ 2. At 09/1981: ________  3. At 09/1986: ________ 

 Which bond would you have preferred to purchase? 04/1954? ________  09/1976? ________ 09/1981? ________ 

Why?

Part II: According to the textbook's discussion, the Fisher Equation can be expressed as Nominal Interest Rate Real Rate + Expected Inflation. The textbook further explains that the nominal interest rate on any financial instrument is a function of not only the real rate and expected future inflation, but also interest rate risk, default risk, taxability, and the lack of liquidity. Using again the Federal Reserve's historical data on interest rates at http://www.federalreserve.gov/releases/h15/data.htm, find the following rates recorded for the latest month?

Federal Funds_______

4-Week Treasury bills________

6-Month Treasury bills________

10-Year Treasury bonds________

20-Year Treasury bonds________

30-Year Treasury bonds________

Moody's seasoned

Corporate Bonds

Aaa________

Baa________

Provide in the space below an explanation for the determination of the latest monthly rate on Moody's seasoned corporate bonds rated Baa based on the above rates and the factors that determine nominal interest rates.