Q3 Ch 2 (10%) Go to https://fred.stlouisfed.org/categories . Under Money, Banking, & Finance select Interest Rates and then select the Treasury Bills then 3-Month Treasury Bill: Secondary Market Rate. Describe how this rate has changed in recent months. Using the information in this chapter, explain why the interest rate changed as it did. 1

Q4 Ch 2 (20%) Using the same website, retrieve data at the beginning of the last 20 quarters for interest rates (based on the three-month Treasury-bill rate) and the producer price index for all commodities (under Prices) and place the data in two columns of an Excel. Derive the change in interest rates on a quarterly basis. Then derive the percentage change in the producer price index on a quarterly basis, which serves as a measure of inflation. Apply regression analysis in which the change in interest rates is the dependent variable and inflation is the independent variable (see appendix B for information about applying regression analysis). a. Explain the relationship that you find. b. Does it appear that inflation and interest rate movements are positively related?

Q5 Ch 4 (15%) Interpret the following comments made by Wall Street analysts and portfolio managers a. The Feds future monetary policy will be dependent on the economic indicators to be reported this week. b. The Feds role is to take the punch bowl away just as the party is coming alive. c. Inflation will likely increase because real short-term interest rates currently are negative.

Q6 Ch 6 (15%) a. Suppose a finance student purchased a three-month T-bill with a $5,000 par value for $4,500 and sold it ninety days later for $4,200. What is the yield? b. Newly issued three-month T-bills with a par value of $9,000 sold for $8,600. Compute the T-bill discount. c. Assume that your friend paid $89,000 for a $90,000 T-bill maturing in 120 days. If you hold it until maturity, what is the T-bill yield? What is the T-bill discount? 2

Q7 Ch 6 (20%) Go to https://fred.stlouisfed.org/categories . Under Money, Banking, & Finance select Interest Rates. Compare the yield offered on a T-bill with the yield offered by another money market security with a similar maturity. a. What is the difference in yields? b. Why do you think the yields differ? c. How is the risk premium on a specific risky money market security (versus the T-bill) changed since one year ago? d. Is the change due to a change in economic conditions? Explain