Go to the St. Louis Federal Reserve FRED database, and find data on the three-month U.S. Treasury note (TB3MS), the three-month AA nonfinancial commercial paper rate (CPN3M), the three-month AA financial commercial rate (CPF3M), and the St. Louis Fed financial stress index (STLFSI). Use the frequency setting to convert the financial stress index to “Monthly.” Download the data into a spreadsheet.

a) Calculate the credit spread, or the difference between the commercial paper rate and the treasury rate, for both commercial paper series. What are the spreads for the most recent data available? How do the financial and nonfinancial spreads differ, if at all?

b) Report the current credit spreads for the most recent data available, along with the spreads for one year earlier and for October 2008. Comment on the differences in the spreads. How does asymmetric information help explain the differences in the spreads?

c) Create a graph showing the financial stress index along with the credit spreads since 2000. How do the credit spreads behave compared to the financial stress index? Given that the financial stress index indicates asymmetric information problems (or lack thereof), what can you conclude about the relationship between asymmetric information and credit spreads?