Term Structure of Interest Rates Your investment company's trading system has be 100 20come unstable after a recent update so that your superiors ask you to verify the calculations displayed on the traders' screens Type Maturity UST Bill 182D UST P Strip 1Y UST Note 1 5Y UST Note 2Y Coupon 2 30 3 80 Price Spot Yield 99 9650 99 9000 100 0152 100 1403 Disc Factor Fwd Rate (a)Using current UST security information from Bloomberg reproduced above, you extract the relevant spot rates by hand and fill in the remainder of the table to verify the computations of your system Note that the maturities are exactly as stated You might want to provide the requisite formulae indicating your exact calculations to convince your boss that it is not you who is at fault but rather the IT techs who botched the update (b)Draw the corresponding UST discount yield curve and indicate a hypothetical AAA corporate term structure (sketch) relative to the US TSIR (c)What is the relationship between the US sovereign and corporate AAA yield curves What explains the difference in yields by maturity and how do markets use this infor mation (d)The FRB has announced in December 2016 that it will cease to intervene in bond markets and bring its policy of quantitative easing to an end What will the effect of the Fed's tapering announcement on the yield curve be Explain 2 (e)Optional Research the current yield curve as of the date of the exam and compare it20to the one at the beginning of the year What do you see Download the data (e g , from www treasury gov), generate the requisite chart, and explain

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Term Structure of Interest Rates.Your investment company's trading system has be-100+20come unstable after a recent update so that your superiors ask you to verify the

Term Structure of Interest Rates.Your investment company's trading system has be-100+20come unstable after a recent update so that your superiors ask you to verify the calculations

displayed on the traders' screens.

Type Maturity

UST Bill 182D UST P-Strip 1Y UST Note 1.5Y UST Note 2Y

Coupon

2.30 3.80

Price Spot Yield

99.9650

99.9000 100.0152 100.1403

Disc Factor

Fwd Rate

(a)Using current UST security information from Bloomberg reproduced above, you extract the relevant spot rates by hand and fill in the remainder of the table to verify the computations of your system. Note that the maturities are exactly as stated.
You might want to provide the requisite formulae indicating your exact calculations to convince your boss that it is not you who is at fault but rather the IT techs who botched the update.
(b)Draw the corresponding UST discount yield curve and indicate a hypothetical AAA corporate term structure (sketch) relative to the US TSIR.
(c)What is the relationship between the US sovereign and corporate AAA yield curves? What explains the difference in yields by maturity and how do markets use this infor- mation?
(d)The FRB has announced in December 2016 that it will cease to intervene in bond markets and bring its policy of quantitative easing to an end. What will the effect of the Fed's tapering announcement on the yield curve be? Explain
2

(e)Optional.Research the current yield curve as of the date of the exam and compare it20to the one at the beginning of the year. What do you see? Download the data (e.g., from www.treasury.gov), generate the requisite chart, and explain.