Go to the St. Louis Federal Reserve Web site at www.stlouisfed.org and find the ?FRED?? link and the ?Interest Rates? link. You will find a list of links for different historical interest rates. Follow the ?10-Year Treasury Constant Maturity Rate? link and you will find the monthly 10-year Treasury note interest rates. Calculate the average annual 10-year Treasury interest rate for 2007 and 2008. Compare this number to the long-term government bond returns and the U.S. Treasury bill returns found in Table 10.1. How does the 10-year Treasury interest rate compare to these numbers? Do you expect this relationship to always hold? Why or why not?

Transcribed Image Text:

TABLE 10.1 Year-to-year total returns: 1926–2008 U.S. Treasury Bills Long-Term Government Bonds U.S. Treasury Bills Large-Company Stocks Consumer Price Index Large-Company Stocks Long-Term Government Bonds Consumer Price Index Year Year 1926 -1,12% -2.26 -1.16 0.58 6.40 -9.32 -10.27 0.76 1.52 2.99 1.45 5.49% 6.90 6.50 4.36 4.23 7.29 7.99 5.87 5.07 5.45 7.64 10.56 11.14% 37.13 43.31 -8.91 -25.26 -43.86 -8.85 52.88 -2.34 47.22 32.80 -35.26 33.20 -0.91 -10.08 -11.77 21.07 25.76 7.90% 3.30% 11.00% 5.30% 4.72% 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 10.36 -1,37 5.23 5.80 -8.04 14.11 0.31 12.98 5.88 8.22 -0.13 3.15 4.05 -8.47 3.94 14.30 -7.45 12.24 12.67 9.15 -12.66 -3.28 4.67 18.34 2.31 -2.07 6.20 5.57 3.27 3.41 8.71 12.34 6.94 4.86 6.70 9.02 13.29 12.52 8.92 3.83 3.79 3.95 3.80 1.10 4.47 227 18.99 -14.69 -26.47 37.23 23.93 -7.16 6.57 1.15 0.88 0.52 0.27 0.17 0.17 0.27 0.06 0.04 04 0.14 0.34 0.38 0.38 0.38 0.38 0.62 1.06 1.12 1.22 1.56 1,75 1.87 0.93 2.86 -2.78 0.00 0.71 9.93 9.03 2.96 2.30 2.25 18.13 8.84 2.99 -2.07 5.93 6.00 0.75 0.75 -0.74 0.37 2.99 2.90 1.76 1.73 1,36 0.67 1.33 1.64 0.97 1.92 3.46 3.04 18.61 32.50 4.92 21.55 22.56 6.27 31.73 18.67 5.25 16.61 31.69 -3.10 30.46 7.62 10.08 1.32 37.58 22.96 -2.76 -5.91 -0.16 49.90 -2.11 16.53 39.00 32.51 -8.09 8.71 22.15 5.44 20.04 8.09 22.32 -11.46 37.28 6.26 5.71 10.34 -8.66 2.67 2.50 12.10 14.60 10.94 8.99 9.90 7.71 19.09 36.46 -8,18 5.24 5.10 18.06 30.58 2.88 5.17 4.07 -1.15 2.10 7.02 -1,44 -3.53 1.82 -0.88 7.89 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 6.09 5.88 6.94 8.44 7.09 5,43 3.48 3.03 4.39 5.61 5.14 4,43 4.42 4.65 6.11 3.06 2.90 1951 24.55 2.75 2.67 254 3.32 18.50 -1,10 52.40 31.43 6.63 -10.85 1952 1953 1954 1955 1956 1957 -2.59 -1.03 -3.14 5.25 1.80 266 3.28 1997 1998 1999 33.36 17.70 5.19 4.86 4.00 1.70 1.61 2.68 19.22 -12.76 22.16 28.58 21.04 -9.10 1958 1959 1960 1961 1962 1963 1964 1965 1966 43,34 11.90 0.48 26.81 -8.78 22.69 16.36 12.36 -10.10 23.94 -6.70 -1,35 7.74 1.71 3.48 281 2.40 2.82 3.23 3.62 4.06 4.94 4.39 2000 2001 2002 2003 2004 2005 2006 2007 2008 5.08 3.33 1.61 1.03 1,43 3.30 4.97 4.52 1.24 3.39 1.55 2.38 1.88 -11 89 -22.10 28.68 10.88 4.91 15.79 5.49 37.00 5.30 14.08 1.62 10.34 10.35 0.28 10.85 39.46 3.02 4.63 1.37 4.43 1.40 -1.61 -6.38 3.26 3,42 2.54 4.08 0.09 1967