The data has been collected in the Microsoft Excel he below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations Download spreadshest interest Rate Determination and Yield ya 1226) What effect would each of the following events likely have on the level of nominal interest rates? 1. Households dramatically decrease their savings rate. This action will the supply of money, therefore, interest rates will 2. Corporations decrease their demand for funds following a decrease in investment opportunities This action will cause interest rates to 3. The government runs a smaller than expected budget deficit The smaller the federal dehot, other things held constant, the the level of interest rates 4. There is an increase in expected inflation This expectation will cause interest rates to b. Suppose you are considering two possible investment opportunities a 12-year Treasury bond and a 7 year, AA-rated corporate bond. The current real risk free rate is 3%, and inflation is expected to be 3% for the next 2 years, 4% for the following 4 years, and 5% thereafter. The maturity risk premium is estimated by this formula: MRP -0.03(1-1). The liquidity premium (L) for the corporate bond is estimated to be 0.2%. You may determine the default risk premium (ORP) given the company's bond rating, from the following table. Remember to subtract the bord's LP from the corporate spread given in the table to arrive at the band's DRP Corporate Bond Yield Spread DRP + LP Rate 0.83% 0.93 U.S. Treasury MAA corporate A corporate A corporate 1.27 0.10% 0.46 0.84 1.67 What yield would you predict for each of these two investments? Round your answers to three decimal places 12 year Treasury Yield 7 year Corporate yield 5 Given the following Treasury bond Vield information, construct a graph of the viel Maturity 1 year 2 years 3 years Year 5 year 10 ve Vield 52 5) S4 5.53 5.63 10 Years 20 years 30 years 5.62 6.12 5.19 Choose the correct grach The correct graphis A Yilne Yield Curve 398 6 IR 16. Inter 1 09 13 10 Yato Statant Yield Curve 19 D D 39 Yield Curve 69 34 59 In Rate 3 39 Intret 39 24 1 3 04 10 15 09 20 30 10 15 Years to Maraty d. Based on the information about the corporate bond provided in part b, calculate yields and then construct a new yield curve graph that shows both the Treasury and the corporate bonds. Round your answers to two decimal places Years Treasury yield A corporate yield 1 2 5.22 5.325 5.54% 1 5 10 20 5.15 5.029 6.12% 5.29% Chose the correct graph The correct graphs The correct graphis . Treaty and Corporate Yield Curves 8 B. Trasury and Corporate Yield Curves 394 73 796 69 64 546 596 45 3 145 In 29 15 19 ON 09 10 Yanto My Trebond 30 23 Corporated 10 15 20 Year to May Treasury bed Corporate bond C Trary and Corporate Yield Curves D. Treasury and Corporate Yield Curves 54 75 64 5 39 Interite 49 24 29 18 19 09 09 30 20 30 TO 30 en Mai Tranbod Corporate bool 15 Years to Me Thybo Corporate Which part of the yield curve (the left side or not) skely to be most wie over time? Short termes are volatile than longer terrates therefore, the side of the yieure would be most volatile over time 1. Using the Treasury yoeld information in pat calculate the following rates using geometric averages (round your answers to three decimal places) 1. The 1 year rate, 1 year from now 2. The 5 Year rate, 5 years from now 10 The 10 year rate, 10 years from now 4. The 10 year rate, 30 years from now The data has been collected in the Microsoft Excel he below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations Download spreadshest interest Rate Determination and Yield ya 1226) What effect would each of the following events likely have on the level of nominal interest rates? 1. Households dramatically decrease their savings rate. This action will the supply of money, therefore, interest rates will 2. Corporations decrease their demand for funds following a decrease in investment opportunities This action will cause interest rates to 3. The government runs a smaller than expected budget deficit The smaller the federal dehot, other things held constant, the the level of interest rates 4. There is an increase in expected inflation This expectation will cause interest rates to b. Suppose you are considering two possible investment opportunities a 12-year Treasury bond and a 7 year, AA-rated corporate bond. The current real risk free rate is 3%, and inflation is expected to be 3% for the next 2 years, 4% for the following 4 years, and 5% thereafter. The maturity risk premium is estimated by this formula: MRP -0.03(1-1). The liquidity premium (L) for the corporate bond is estimated to be 0.2%. You may determine the default risk premium (ORP) given the company's bond rating, from the following table. Remember to subtract the bord's LP from the corporate spread given in the table to arrive at the band's DRP Corporate Bond Yield Spread DRP + LP Rate 0.83% 0.93 U.S. Treasury MAA corporate A corporate A corporate 1.27 0.10% 0.46 0.84 1.67 What yield would you predict for each of these two investments? Round your answers to three decimal places 12 year Treasury Yield 7 year Corporate yield 5 Given the following Treasury bond Vield information, construct a graph of the viel Maturity 1 year 2 years 3 years Year 5 year 10 ve Vield 52 5) S4 5.53 5.63 10 Years 20 years 30 years 5.62 6.12 5.19 Choose the correct grach The correct graphis A Yilne Yield Curve 398 6 IR 16. Inter 1 09 13 10 Yato Statant Yield Curve 19 D D 39 Yield Curve 69 34 59 In Rate 3 39 Intret 39 24 1 3 04 10 15 09 20 30 10 15 Years to Maraty d. Based on the information about the corporate bond provided in part b, calculate yields and then construct a new yield curve graph that shows both the Treasury and the corporate bonds. Round your answers to two decimal places Years Treasury yield A corporate yield 1 2 5.22 5.325 5.54% 1 5 10 20 5.15 5.029 6.12% 5.29% Chose the correct graph The correct graphs The correct graphis . Treaty and Corporate Yield Curves 8 B. Trasury and Corporate Yield Curves 394 73 796 69 64 546 596 45 3 145 In 29 15 19 ON 09 10 Yanto My Trebond 30 23 Corporated 10 15 20 Year to May Treasury bed Corporate bond C Trary and Corporate Yield Curves D. Treasury and Corporate Yield Curves 54 75 64 5 39 Interite 49 24 29 18 19 09 09 30 20 30 TO 30 en Mai Tranbod Corporate bool 15 Years to Me Thybo Corporate Which part of the yield curve (the left side or not) skely to be most wie over time? Short termes are volatile than longer terrates therefore, the side of the yieure would be most volatile over time 1. Using the Treasury yoeld information in pat calculate the following rates using geometric averages (round your answers to three decimal places) 1. The 1 year rate, 1 year from now 2. The 5 Year rate, 5 years from now 10 The 10 year rate, 10 years from now 4. The 10 year rate, 30 years from now