Question

As the junior analyst for an investment management firm, you have been assigned to prepare a presentation for clients regarding the term structure of interest rates. Because the shape of the term structure of interest rates is often used to predict future macroeconomic conditions as wells as the course of future short-term interest rates, your presentation will consist of the following:

-Plot the yield curve for each year between 2006 – 2020 and display these data on one graph.

-For each year indicate the shape of the yield curve, i.e., Normal, Inverted, or Flat.

-Calculate and plot the series of one-year forward rates for each year between 2006 –2020, i.e., 2f1, 3f1, 4f1, 5f1, 6f1, 7f1, 8f1, 9f1, 10f1 – the presentation must include your forward rate estimates.

-For each forward-rate curve indicate the expected direction of future short-term rates, i.e., Increasing, Decreasing, Constant.

To complete this assignment, one of your colleagues has provided you with the attached spreadsheet that contains year-end, constant-maturity and zero-coupon yields from 2006 –2020. These data are published by the board go governors of the federal reserve system and represents “constant maturity” and zero coupon yields that are interpolated by the U.S.Treasury from the daily yield curve for non-inflation-indexed Treasury securities. These yields are based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of quotations obtained by the Federal Reserve Bank of New York.

Yield Curve

DATE	1-mo	3-mo	1-yr	2-yr	5-yr	7-yr	10-yr	20-yr	30-yr
2006	5.02	5.10	5.11	4.97	4.91	4.93	4.99	5.17	5.07
2007	5.13	4.96	4.85	4.56	4.60	4.67	4.78	5.00	4.92
2008	1.55	1.68	2.27	2.52	3.25	3.56	3.99	4.63	4.59
2009	0.14	0.18	0.48	1.13	2.53	3.13	3.52	4.29	4.31
2010	0.14	0.15	0.29	0.55	1.60	2.30	2.94	3.74	3.98
2011	0.16	0.10	0.20	0.36	1.35	2.09	2.82	3.77	4.12
2012	0.07	0.11	0.16	0.23	0.60	0.98	1.51	2.21	2.56
2013	0.03	0.04	0.11	0.31	1.38	2.00	2.60	3.34	3.64
2014	0.01	0.03	0.12	0.53	1.76	2.24	2.58	3.07	3.32
2015	0.04	0.8	0.33	0.67	1.54	1.93	2.20	2.61	2.92
2016	0.19	0.28	0.50	0.67	1.03	1.29	1.46	1.78	2.18
2017	1.00	1.07	1.23	1.34	1.84	2.11	2.30	2.66	2.89
2018	1.94	2.03	2.44	2.67	2.85	2.92	2.96	3.03	3.08
2019	2.01	2.08	2.00	1.89	1.84	1.92	2.02	2.31	2.53
2020	0.09	0.09	0.11	0.11	0.21	0.39	0.55	0.98	1.20
2021	0.05	0.06	0.07	0.19	0.69	1.00	1.24	1.81	1.89
2022	2.20	2.42	2.93	2.85	2.69	2.69	2.68	3.23	3.02

 

Zero Coupon

DATE	1-yr	2-yr	3-yr	4-yr	5-yr	6-yr	7-yr	8-yr	9-yr	10-yr
2006	5.1635	5.1835	5.1377	5.0864	5.0520	5.0397	5.0483	5.0741	5.1132	5.1622
2007	4.8784	4.9002	4.8834	4.8682	4.8686	4.8871	4.9217	4.9692	5.0263	5.0901
2008	2.2662	2.6521	2.9543	3.2036	3.4182	3.6088	3.7820	3.9417	4.0905	4.2304
2009	0.5512	1.1007	1.6471	2.1428	2.5768	2.9529	3.2790	3.5639	3.8152	4.0390
2010	0.2797	0.6227	1.0480	1.4710	1.8606	2.2092	2.5185	2.7933	3.0390	3.2602
2011	0.1503	0.4936	0.9458	1.4026	1.8248	2.2020	2.5353	2.8298	3.0915	3.3258
2012	0.1943	0.3222	0.4808	0.6514	0.8250	0.9971	1.1655	1.3293	1.4880	1.6416
2013	0.1497	0.4218	0.7591	1.0990	1.4177	1.7085	1.9720	2.2108	2.4285	2.6282
2014	0.1771	0.5144	0.8780	1.2258	1.5442	1.8313	2.0899	2.3238	2.5369	2.7324
2015	0.3344	0.7300	1.0590	1.3408	1.5886	1.8110	2.0141	2.2017	2.3768	2.5413
2016	0.4819	0.6571	0.7792	0.8855	0.9912	1.1013	1.2165	1.3358	1.4578	1.5812
2017	1.2685	1.4671	1.6021	1.7147	1.8223	1.9314	2.0437	2.1587	2.2755	2.3929
2018	2.3322	2.5592	2.6315	2.6529	2.6678	2.6929	2.7326	2.7862	2.8513	2.9252
2019	1.9569	1.8037	1.7202	1.6923	1.7063	1.7510	1.8176	1.8994	1.9914	2.0902
2020	0.1918	0.1988	0.2007	0.2209	0.2648	0.3303	04134	0.5098	0.6155	0.7275
2021	0.1279	0.2882	0.4609	0.6369	0.8118	0.9835	1.1508	1.3134	1.4710	1.6236
2022	2.7063	3.1088	3.1913	3.1577	3.0981	3.0487	3.0212	3.0170	3.0332	3.0662

Help ASAP please and thank you so much in advance