y Interest Rate Determination and Yield Curves Excel Activity: Interest Rate Determination and Yield Curves The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round mtermediate calculations Download sticandohet Interest Bate. Determination and Gaye 17200) What effect would each of the following events kely 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 delict, other things held constant, the the level of interest rates 4.There is an increase in expected inflation This expectation will use interest rates to b. Suppose you me considering two possible investment opportunities a 12-year Temury bond and a 7-year, Mrated corporate bond the current real risk free rate is 3% and inflation expected to be for the next years, 4 for the following 4 years, and 5% thereafter the maturity risk premium is estimated by this formula: MRP 0.03 13%. The liquidity premium (LP) for the corporate bond is estimated to be 0.2% You may determine the default risk premium (ORP), on the company's bond rating from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's ORP D Corporate Bond Yield Rate Spread DRP+ US Treasury 0.3% AAA corporate 0203 0.10% A corporate 1.27 0.44 A corporate 1. 0.84 What yield would you predict for each of these two Investments? Round your answers to three decimal places 12-year sury veld % year Corporate yield c. Given the following Treasury bond yield information, construct a graph of the yield curve Yield A-Z Maturity 1 year 2 years 3 years 4 years Syeon 10 years 20 years 5:22 502 5.54 SSH 555 5.62 6:12 5.79 6 30 Year Choose the correct graph The correctoraph A Yold Curve Yield ON on 9 ret IR 35 Yold Curve D Yield Curve IN 64 314 5 14 ser IN 39 19 09 10 13 20 Years to Maturity 30 10 15 20 Years to Maurity E MINDTAP a Search thico Interest Rate Determination and Yield Curves 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 Treaty and the corporate bonds. Round your answers to two decimal places. Years Treasury yield A corporate yield 1 2 3 4 5.27% 5.32% 5.54% 5.5896 5.53% 5.62% 6.125 5.7996 5 10 20 30 Choose the correct graph The correct graphis Trand Corporate Yeld Curves Trasy and Corporate Yield Curses 39 tivity interest Rate Determination and Yield Curves Try and Corporate Vield Curves 34 Treasury and Corporate Vield Curves 19 59 55 Inde 49 Intel 394 390 25 19 19 ON 3 33 30 30 10 13 20 Teans to Maturity Trasy bood 30 15 30 Year to Marat Treasury bed Corporateboard Corporate Try and Corporate Vield Curves D Try and Corporeldre 7 23 R ER 19 e. Which part of the yield curve (the left side or night side) is likely to be most volatile over time? Short-term rates are volatile than longer term rates; therefore, the side of the yield Curve would be most volatile over time 1. Using the Treasury viel information in part 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 3. The 10-year rate, 10 years from now 4. The 10-year rate, 20 years from now 6 y Interest Rate Determination and Yield Curves Excel Activity: Interest Rate Determination and Yield Curves The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round mtermediate calculations Download sticandohet Interest Bate. Determination and Gaye 17200) What effect would each of the following events kely 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 delict, other things held constant, the the level of interest rates 4.There is an increase in expected inflation This expectation will use interest rates to b. Suppose you me considering two possible investment opportunities a 12-year Temury bond and a 7-year, Mrated corporate bond the current real risk free rate is 3% and inflation expected to be for the next years, 4 for the following 4 years, and 5% thereafter the maturity risk premium is estimated by this formula: MRP 0.03 13%. The liquidity premium (LP) for the corporate bond is estimated to be 0.2% You may determine the default risk premium (ORP), on the company's bond rating from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's ORP D Corporate Bond Yield Rate Spread DRP+ US Treasury 0.3% AAA corporate 0203 0.10% A corporate 1.27 0.44 A corporate 1. 0.84 What yield would you predict for each of these two Investments? Round your answers to three decimal places 12-year sury veld % year Corporate yield c. Given the following Treasury bond yield information, construct a graph of the yield curve Yield A-Z Maturity 1 year 2 years 3 years 4 years Syeon 10 years 20 years 5:22 502 5.54 SSH 555 5.62 6:12 5.79 6 30 Year Choose the correct graph The correctoraph A Yold Curve Yield ON on 9 ret IR 35 Yold Curve D Yield Curve IN 64 314 5 14 ser IN 39 19 09 10 13 20 Years to Maturity 30 10 15 20 Years to Maurity E MINDTAP a Search thico Interest Rate Determination and Yield Curves 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 Treaty and the corporate bonds. Round your answers to two decimal places. Years Treasury yield A corporate yield 1 2 3 4 5.27% 5.32% 5.54% 5.5896 5.53% 5.62% 6.125 5.7996 5 10 20 30 Choose the correct graph The correct graphis Trand Corporate Yeld Curves Trasy and Corporate Yield Curses 39 tivity interest Rate Determination and Yield Curves Try and Corporate Vield Curves 34 Treasury and Corporate Vield Curves 19 59 55 Inde 49 Intel 394 390 25 19 19 ON 3 33 30 30 10 13 20 Teans to Maturity Trasy bood 30 15 30 Year to Marat Treasury bed Corporateboard Corporate Try and Corporate Vield Curves D Try and Corporeldre 7 23 R ER 19 e. Which part of the yield curve (the left side or night side) is likely to be most volatile over time? Short-term rates are volatile than longer term rates; therefore, the side of the yield Curve would be most volatile over time 1. Using the Treasury viel information in part 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 3. The 10-year rate, 10 years from now 4. The 10-year rate, 20 years from now 6