Go to the web site of the Federal Reserve Bank of St. Louis Federal Reserve (FRED) (fred.stlouisfed.

Question:

Go to the web site of the Federal Reserve Bank of St. Louis Federal Reserve (FRED) (fred.stlouisfed. org) and download data on the interest rate on AAA rated corporate bonds (AAA) and the interest rate on constant maturity 10-year U.S. Treasury notes (GS10) from January 1953 to the most recent available month.
a. Calculate the default risk premium and plot the resulting data series on a graph.
b. You can find the dates of U.S. recessions at the web site of the National Bureau of Economic Research (NBER) (www.nber.org/cycles/cyclesmain.html). What happens to the default risk premium during recessions? Holding everything else constant, what would you expect to happen to the MP curve during recessions?

c. What actions could the Fed take to offset the effect of the changes in the default risk premium on the MP curve?

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...