Web Exercise

Go to the New York Federal Reserve Bank Web site ny.frb.org/.

a. Click on the TreasuryDirect box. On the next screen, click on Treasury Bill Auction Results for a list of Treasury bills that were auctioned weekly during the last 4 months. Information includes issue dates, maturity dates, discount rates, investment rates, and the price paid based on a $100 par value.

The discount rate is an annualized rate of return based on the par value of the bill. The investment rate, or equivalent coupon yield, is an annualized rate based on the purchase price of the bill and reflects the actual yield if the bill is held until maturity. Both rates are calculated on the basis of the actual number of days to maturity. The discount rate is calculated on a 360-day basis, the investment rate on a 365-day basis (or 366 days in a leap year).

Select one security and use its price to calculate the investment rate on the basis of the method given in this book. Compare your answer to that given in the table.

b. Go back to the home page and click on the Statistics box. On the next screen, click on the FRED Federal Reserve Economic Database. Under the Database Categories, click on Monthly Interest Rates and the 3-Month Treasury Bill Rate—Auction Average. The table lists monthly T-bill rates since the 1940s and gives you some idea of the rates of return you would have earned over the years if you had invested in Treasury bills. You can also explore rates of return on other longer-term Treasury securities (such as notes and bonds).