Reference no: EM131160952

Given the following data on yields of 10 year Treasury notes and 10 year TIPS,(treasury inflation protection securities), and assuming that in parts a and b you assume that required real yields to maturity are the same in indexed and regular treasuries of similar maturities, what conclusion do you draw about:

a) Changes in investors' expectation of inflation rates in the US since spring 2015? Give a numerical answer if you can and in any case explain why you think the data indicate a rise, a fall or no change in inflation expectations.

b) Changes in investors required real rates of return on "risk free" rates in the US economy now as opposed to 3 years ago at this time. Explain your answer.

                           10 Year T-note yield             10 Year TIPS Yield

July 2015:           2.131%                                                 .506%

now                     1.514%                                                  .011%

C) What differences--Other than indexing future cash flows to % changes in the CPI for the 10 year TIPS vs. having cash flows fixed for both coupon rate and maturity value for regular treasuries--could affect the difference in their yields? Explain