finance-Interest Rates and Bond Valuation Worksheet

finance-Interest Rates and Bond Valuation Worksheet

finance-Interest Rates and Bond Valuation Worksheet

Name ____
Rates and Bond Valuation Worksheet
Part I: Go to the Federal Reserve’s Web site to
examine historical monthly interest
rates on 10-year government bonds at”>

(Historical data on other selected interest rates can be
accessed via”>
and answer the following questions:

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A. What was the nominal rate on 10-year U.S. Treasury bonds
at each of the following?

1. At 04/1954: _2.29_______ 2. At 09/1976: _7.59_______ 3. At 09/1981: _15.32_______ 4. For the Latest Month: _2.65_______

B. Assume that a $1000 U.S. Treasury bond was purchased at
par on each of first three
dates above. Also
assume that for each of the three bonds the reported nominal rate
that you found
above was the coupon rate at issuance.

semi-annual coupon payments, calculate the value of each bond after 5
years based on
the then 5-year nominal rates on U.S. Treasuries available at”>
to determine the
gain or loss on each of the three bonds after 5 years?
1. At 04/1959: _4.12_______ 2. At 09/1981: _15.93_______ 3. At 09/1986: __6.92______

Which bond would you have preferred to purchase? 04/1954? _1.87_______ 09/1976? _7.13_______ 09/1981? _15.93_______


I would purchase the 09.1981 at 15.93% because it is contains
the highest rate for the most gain.

Part II: According to the textbook’s discussion, the
Fisher Equation can be expressed as Nominal Interest Rate ≈ Real Rate +
Expected Inflation. The textbook further explains that the nominal interest
rate on any financial instrument is a function of not only the real rate and
expected future inflation, but also interest rate risk, default risk,
taxability, and the lack of liquidity. Using again the Federal Reserve’s
historical data on interest rates at”>,
find the following rates recorded for the latest month?

Federal Funds _0.20______
4-Week Treasury bills _0.14_______
6-Month Treasury bills __0.18______
10-Year Treasury bonds __2.50______
20-Year Treasury bonds __3.41______
30-Year Treasury bonds __3.74______
Moody’s seasoned.doc#_ftn1″ title=””>[1]
Corporate Bonds
Aaa _4.58_______
Baa _5.61_______
Provide in the space below an explanation for the
determination of the latest monthly rate on Moody’s seasoned corporate bonds
rated Baa based on the above rates and the factors that determine nominal
interest rates.

.doc#_ftnref1″ title=””>[1] “Moody’s
Bond Yields Series are based on seasoned bonds with remaining maturities of at
least 20 years…from pricing data on a regularly-replenished population of
nearly 90 seasoned corporate bonds in the US market, each with current
outstandings over $100 million. The bonds have maturities as close as possible
to 30 years,…they are dropped from the list if their remaining life falls below
20 years or if their ratings change.”



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