5. Rank order the yield curves from lowest to highest rate at 5 years and 25 yea
ID: 3120626 • Letter: 5
Question
5. Rank order the yield curves from lowest to highest rate at 5 years and 25 years. Write the asset name under the rate indicator. Then find the yield spread in basis points (bps) between the safest asset and the other assets. Enter these figures on the spread row centered between the ratecolumns using the following template:
5yrs:Bondbps spread
Low rate US Treasury: 0
Middle rate Apple Inc: 39
High rate Russia: 121
25yrs:Bondbps spread
Low rate US Treasury: 0
Middle rate Apple Inc: 103
High rate Russia: 196
6. How is using the effective yield equation useful in explaining the bps spreadyou observe in #5. Paste it into your homework and explain how it relates:
Explanation / Answer
5) US treasury has low yield as it is the benchmark rate and safest financial instrument for most of the financial transactions.
Yield spread is defined as difference of yield in the underlying instrument and US treasury rate. Thus,
For 5 years instruments: 39 bps is the yeild spread for Apple Inc. and 121 is the yield spread for Russia.
For 25 year instruments:
103 bps is the yeild spread for Apple Inc. and 196 is the yield spread for Russia.
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