Reference no: EM132465734

1. Begin by finding the current U.S. Treasury yield curve. At the Treasury Web site, search using the term "yield curve" and select "Daily Treasury Yield Curve Rates." Copy the most recent rates for the 1-year through 30-year Treasury bonds into Excel and plot the current Treasury yield curve.

2. Find the current yields for bonds issued by Microsoft Corporation. Go to finra website Using the Search tab, choose "Corporate" for the bond types and enter "Microsoft" for the issuer name. Sort the bonds by maturity and note the yields for bonds maturing within 1 to 30 years. Add a plot of these yields to your graph of the Treasury yield curve as a trendline , and label it is using Microsoft's current bond rating.

Note: Fitting a trendline through the points provides a rough estimate of the average yields we might expect for each maturity.

3. Repeat the analysis in Step 2 for CVS Health. What is CVS Health's current bond rating? How does its yield curve differ?

4. Repeat the analysis again for Boeing Corporation (search for "Boeing Co"). How does its yield curve compare with the previous ones?

5. Using the yield curves, you have found, estimate the value of an annuity that pays $1000 every 5 years over the next 25 years (i.e., five total payments) paid by either the U.S. Treasury, Microsoft, CVS, or Boeing. What is the implied yield to maturity for each security? (Note: While the yields you have plotted are for coupon bonds, because coupon rates are relatively low, you decide to treat them as zero-coupon yields for this estimation, as you feel the estimation error from such an approximation is small relative to the other noise in the data.)