Treasury Yield Curve Coursework Example | Topics and Well Written Essays - 750 words

Treasury Yield Curve - Coursework Example Inflation affects purchasing power of money and therefore has a major effect on interest rates. Therefore if inflation rate is expected to be 1% during the next year this is added to the risk free interest rate (say 3.5%) and so the Treasury bill rate will be: rT-bill = rRF = r* + IP = 3.5% + 1% = 4.5% The inflation rate is the main factor which determines the shape of the treasury yield curve. If the inflation rate is expected to increase, then the treasury yield curve will slope upwards; which is normal. On the other hand, if the inflation rate is expected to decrease, then this will cause the treasury yield curve to slope downwards. Another factor affecting the Treasury bill rate is interest rate risk. When interest rates rises the prices of treasury bonds decline sharply and since this is a regular occurrence all long term bonds including treasury bonds have an element of interest rate risk. A maturity risk premium (say 2.5%) is therefore added to the risk free rate resulting in the following formula for calculating the Treasury bill rate. rT-bill = rRF = r* + IP + MRP. = 3.5% + 1% + 2.5 = 7% This premium increases with the time to maturity. Therefore, the longer the period the higher maturity risk premium. ... This information tells me that interest rates are subject to various economic conditions that will cause it to rise or fall and that the trend does not have to be continuous as it would appear from the examples seen. This yield curve has a dip and a hump indicating that the interest rates on one year maturities are higher than interest rates on 5 year maturities. The interest rates on medium term maturities rises constantly between year 6 and year 20 and then falls resulting in interest rates on some long term maturities being much lower than the interest rates on some in the medium term. Part 2 Yield to Maturity The yield to maturity is the annualized discount rate that equates the future coupon and payments to the future coupon and principal payments to the initial proceeds received from the bond offering (Madura 2006, p157). Consider Wal-Mart bond which matures on July 2015 with coupon rate of 2.25% which is paid semi-annually. The value of a bond (Vb) is found using the following formula. Vb = 1000 = [$11.25/(1 + rd/2)1] + [$11.25/(1 + rd/2)2] + [$11.25/(1 + rd/2)3] + [$11.25/(1 + rd/2)4] + [$11.25/(1 + rd/2)5] + [$11.25/(1 + rd/2)6] + [$11.25/(1 + rd/2)7] + [$11.25/(1 + rd/2)8] + [$11.25/(1 + rd/2)9] + [$11.25/(1 + rd/2)10] + [$1,0001/(1 + rd/2)10] The PV table can be used to find the figures for each of the ten six-monthly period: where $11.25 is the half yearly coupon rate. The time to maturity is five years and so Wal-Mart 2.25% Corporate Bond Time Periods Interest Payment Maturity Payment Total cash Flow PV Factor (1.125%) PV of Cash Flow    $ $ $    $'000 0       1000 1 1000 Par Value of Bond 1 11.25    11.25 0.9889 11.1251 2 11.25    11.25 0.9779 11.0014 3 11.25    11.25 0.967 10.8788 4 11.25    11.25

16th century Empires Essay Example | Topics and Well Written Essays - 1500 words

16th century Empires - Essay Example To put the comparison in perspective, it has to be noted that religion dominated the public sphere of almost all civilization in the world be it among Europeans, Middle Easters, Andeans or Mesoamericans during the 15th century. Whether it be a the theistic god of the Christian or the pantheistic god of the Andeans and Mesoamericans, religion played a major role in their society. The extent of religious influence however on the policies that govern its empire varies with each civilization. There are civilizations or societies whose imperialistic thrust may be primarily motivated or at least veiled by religion such as the European Spaniards, and there are also societies or civilizations who adopted a more pragmatist approach toward its expansionary ambition such as Incas of the Andeans. We can cite as a classic example the Spaniards in 1521 who were at the height of its religious fervor sending its missionaries to pagan countries to hear the word of God from the Catholic church. Ferdin and Magelland, the leader of the expeditionary Spanish Fleet was in fact looking for spices in the exotic world but used religion to subjugate the natives of the Philippines when it landed in Mactan. It did not tell the natives that they were really there looking for spices and other items for trade but rather used the cross and the sword to justify their presence. What followed is a more than 300 years of colonial rule characterized by theocracy to usurp the country of its natural resources. Compared to the Incans who were dominant among the Andeans during its height in the 15th century, the Incans as representative of the Andeans were more pragmatic in its approach in gaining material resources to sustain its empire. From periods 1438 to 1533, the Andeans used a wide variety of method to sustain herself that ranged from conquest to peaceful assimilation that would integrate territories that they