Problem Set 1: Bonds Data for yield Curve (Table 1) 26 Jan 2010 Data US Treasury Bonds Rates Yesterday Last Week Maturity Yield Last Month 3 Month 0.14 0.13 0.14 0.10 6 Month 0.17 0.16 0.17 0.19 2 Year 0.62 0.57 0.56 0.64 3 Year 1.02 0.99 0.98 1.06 5 Year 1.98 1.93 1.93 2.02 10 Year 3.42 3.33 3.34 3.33 30 Year 4.59 4.49 4.53 4.39 Source: http://finance.yahoo.com 1. Plot the yield curve from the data in the table above. Describe the yield curve and what the yield curve might suggest about the existing financial climate. 2. Discuss the other two yield curve types and what they suggest for the economy. Table 2: Zero Coupon Bond Yield 1 Sep 2021 6 Mth. 1 YR. 2 YR. 3 YR. 4 YR. 5 YR. 0.060% 0.076% 0.200% 0.420% 0.689% 0.957% 3. Given a 5 year treasury note with a face value of $1000 issued on 1 Sep 2020 with an interest rate of 0.8%. Using Table 2, above, compute the Price of the bond. Assume the zero coupon bonds (strips) have a face value of $100 and that coupons for the priced bond are annual. 4. Using the price computed in question 3, what is the yield to maturity for this bond? 5. Is this bond trading at par, a premium or a discount? 6. Given a 7 year treasury note with a face value of $1000 issued on 1 Sep 2018 with a coupon rate of 0.75%. Using Table 2, above, compute the Price of the bond. Assume the zero coupon bonds (strips) have a face value of $100 and that coupons for the priced bond are annual. 7. Using the price computed in question 3, what is the yield to maturity for this bond? 8. Is this bond trading at par, a premium or a discount