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Yield Curve

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Visit http://www.bondsonline.com/ to complete the project below. You will be particularly interested in "Today's Market" and the "Corporate Bond Yields" sections.

Project

Draw a yield curve for each of the main bond classifications (Treasury, Corporate, Municipal, and Foreign) you saw from the Bonds Online website, placing them on the same graph. (The X-axis of the graph will show years to maturity and the Y-axis will show the yield.) For the corporate, municipal, and foreign bonds, you should assume AA bond ratings. You may have to estimate the yield curve for the foreign bond, but it should be an "educated" estimate developed from your other yield curves. Once you have assembled your graph, answer the following questions:

In terms of the risk included in each bond, do your yield curves make sense? If not, explain why not, and the reason that this "problem" occurs.
Redraw the yield curves, but now assume that the investor purchasing these bonds is in the 28% tax bracket. How do your yield curves differ from those first ones you drew?

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Solution Summary

The solution explains how to draw a yield curve.

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