Bond and Yield Curve
FINS3630 Data Exercise (Group Project 1)
S2, 2013
Lixiong Guo
Due Date: Due in tutorial in Week 5
In this data exercise, you and your group members will examine the performance of the Expectation Hypothesis using real data and make forecasts for the future. You are required to complete the following tasks to earn credits for this assignment.
Part I: (1) Go to the Reserve Bank of Australia (RBA) website, find the statistic section, and then download the data file named “Zero-Coupon Interest Rates - Analytical Series -2009 to current”. (2) Plot the zero-coupon yield curve on October 1, 2009. (3) Based on the yield curve on October 1, 2009, calculate the expected rates on zero-coupon bonds with one-quarter maturity that are to be sold on the first day of the quarter that starts one, two, three and four quarters from Oct 1, 2009 respectively, i.e. the first day of the first, second, third and fourth quarter of 2010. These expected rates are also called the forward rates. (4) Based on your calculations, please comment on the market expectation on Oct 1, 2009 for interest rates on one-quarter maturity zero-coupon bonds that are to be sold on the first day of the above-mentioned four quarters. Over what time intervals does the market expect the short-term rates to go up or down? (5) Get the actual rates on zero-coupon bonds with one-quarter maturity that are sold on the first day of each of the four quarters defined above and compare your calculated forward rates to the actual rates. Please comment to what extent the market expectations are realized or not realized? (6) Repeat steps (2) to (5) for the yield curve on October 4, 2011.
Part II: (7) Plot the yield curve on July 31, 2013. Then calculate the expected rates on one-quarter maturity zero-coupon bonds that are to be sold on the first days of the quarters that start one, two, three and four quarters from July 31, 2013. (8) Based on your calculation, do you think that the
S2, 2013
Lixiong Guo
Due Date: Due in tutorial in Week 5
In this data exercise, you and your group members will examine the performance of the Expectation Hypothesis using real data and make forecasts for the future. You are required to complete the following tasks to earn credits for this assignment.
Part I: (1) Go to the Reserve Bank of Australia (RBA) website, find the statistic section, and then download the data file named “Zero-Coupon Interest Rates - Analytical Series -2009 to current”. (2) Plot the zero-coupon yield curve on October 1, 2009. (3) Based on the yield curve on October 1, 2009, calculate the expected rates on zero-coupon bonds with one-quarter maturity that are to be sold on the first day of the quarter that starts one, two, three and four quarters from Oct 1, 2009 respectively, i.e. the first day of the first, second, third and fourth quarter of 2010. These expected rates are also called the forward rates. (4) Based on your calculations, please comment on the market expectation on Oct 1, 2009 for interest rates on one-quarter maturity zero-coupon bonds that are to be sold on the first day of the above-mentioned four quarters. Over what time intervals does the market expect the short-term rates to go up or down? (5) Get the actual rates on zero-coupon bonds with one-quarter maturity that are sold on the first day of each of the four quarters defined above and compare your calculated forward rates to the actual rates. Please comment to what extent the market expectations are realized or not realized? (6) Repeat steps (2) to (5) for the yield curve on October 4, 2011.
Part II: (7) Plot the yield curve on July 31, 2013. Then calculate the expected rates on one-quarter maturity zero-coupon bonds that are to be sold on the first days of the quarters that start one, two, three and four quarters from July 31, 2013. (8) Based on your calculation, do you think that the