2. Portfolio B consists of U.S. Treasury bills with one month maturity. Each period after receive...
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2. Portfolio B consists of U.S. Treasury bills with one month maturity. Each period after receive the payment, we invest in the Treasury bills again the gross return (principal + interest). a) Suppose the interest rate is it at month t. What is the value (gross return) of portfolio A in T months from today? What is the value of portfolio B in T months from now? b) Go to FRED, and download data on the yield on 1-month Treasury bonds (code: DGS1MO) and the CPI (code: CPIAUCSL). When you select the yield data, use the drop-down menu to change the frequency to monthly. (Next to the drop-down for frequency, there's a drop-down called "Aggregation method," which should be set to "average.") Also, the yields from FRED are annualized, and we want them to be monthly. Consequently, all of the yields should be divided by 12 before you use them in any calculations below. Observe that it is in percentage terms, so you need to divide by 100 also. i. Plot the yield series over the entire span of time for which data is available. ii. Plot the value of both portfolios, in dollars, over time on the same set of axes. iii. To convert the value of an asset from dollars to goods, it's necessary to divide by the dollar value by the price of goods. Plot the value of both portfolios, in goods, over time on the same set of axes. iv. The above should show that Portfolio A performs poorly, relative to Portfolio B, over the span of time considered. Now, suppose that Portfolios A and B are started in January 2009, and you only track the values of the portfolios through December 2016. Repeat parts iii and 2. Portfolio B consists of U.S. Treasury bills with one month maturity. Each period after receive the payment, we invest in the Treasury bills again the gross return (principal + interest). a) Suppose the interest rate is it at month t. What is the value (gross return) of portfolio A in T months from today? What is the value of portfolio B in T months from now? b) Go to FRED, and download data on the yield on 1-month Treasury bonds (code: DGS1MO) and the CPI (code: CPIAUCSL). When you select the yield data, use the drop-down menu to change the frequency to monthly. (Next to the drop-down for frequency, there's a drop-down called "Aggregation method," which should be set to "average.") Also, the yields from FRED are annualized, and we want them to be monthly. Consequently, all of the yields should be divided by 12 before you use them in any calculations below. Observe that it is in percentage terms, so you need to divide by 100 also. i. Plot the yield series over the entire span of time for which data is available. ii. Plot the value of both portfolios, in dollars, over time on the same set of axes. iii. To convert the value of an asset from dollars to goods, it's necessary to divide by the dollar value by the price of goods. Plot the value of both portfolios, in goods, over time on the same set of axes. iv. The above should show that Portfolio A performs poorly, relative to Portfolio B, over the span of time considered. Now, suppose that Portfolios A and B are started in January 2009, and you only track the values of the portfolios through December 2016. Repeat parts iii and
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Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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