Finance Help - Michael Smith Only

· 5 year Treasury Bond – 2.007%

· 10 year Treasury Bond – 2.344%

· 30 year Treasury Bond – 2.820%

Which rate is the highest? Which rate is the lowest? Why? How does this relate to the theory of the yield curve?

2. USE PAGE 2 OF ATTACHMENT, TREASURIES LOCAL GRAPH – Click on the graph icon on the upper right corner of the Treasuries box. What does this graph show you? How does the current 10 year US treasury rate compare with the 10 year rate from one year ago? Why do you think this rate has changed? What do you think has happened in the US economy to cause this change?

3. USE PAGE 3 OF ATTACHMENT, COMPARABLE TREASURIES - Locate the Comparable Treasuries on the upper right side of the page. How does the 10 year US treasury rate compare with those of the European Central Bank and the Japan Central Bank? What is the one year rate and ten year rate for Europe and Japan? Why do you think these rates are different from the US?

PART #2 – Yield Curve Analysis

PART #2 Responses:

Answer the following questions using MS Word:

USE PAGE 4 OF ATTACHMENT TO QUESTIONS 1-3

1. Explain what your graph is showing. What has happened to Treasury rates over the past ten years? Are rates higher or lower than they were five years ago and ten years ago? How much have they changed? Are these all normally shaped yield curves? If not, what does that tell you?

2. Why do you think the yield curves have changed over the over the past decade? What has happened in the US economy or with Federal Reserve activity to cause the changes in US Treasury yields over the last 10 years?

3. If 10 years ago, you purchased and held a large portfolio of 30 year US treasury bonds, would you be better or worse off today and Why ? Do you think the value of the portfolio would have increased or decreased from ten years ago and Why? Would you recommend a similar bond purchase today to be held for another ten years ? Why or Why not?