finance hw

FINA 3383

Spring 2016

Instructor: M. Khan

Homework #2

Go to the following websites and collect data to answer questions that follow.

www.bls.gov (Bureau of Labor Statistics)

www.federalreserve.gov (Federal Reserve System)

www.ustreas.gov (U.S. Treasury)

1. Collect data on CPI-U for the last 25 years (annual data) and compute the rate of inflation for each year. Use MS Excel for computation. (Hint: rate of inflation = (CPI(t) – CPI(t-1))/CPI(t-1)) * 100

2. Collect annual data on 1-year T-security rate (nominal rate of interest). Using the inflation rate data in #1, compute the “real rate of interest” for each year. (Hint: Fisher equation)

3. Collect data on short-term, medium-term and ling-term yield on Treasury securities from the WSJ.

(a) Using the data, draw a yield curve.

(b) What does this curve tell you about inflation in future?

Show interest rates data and the yield curve.

Due on or before 2/23/16

NOTE: You must work independently. Copying, dual submission would be considered cheating and penalized.