BAFI 1002 Financial Markets, Semester 2 ,2020 (3).docx -...

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The final assessment comprises of four (4) questions. You are required to answerall four (4) questions. This assessment is worth a total of 50 marks, with marksfor each question specified at the end of the question.QUESTION 1(THE INTEREST RATES)You are a senior financial analyst and have been asked to analyse recent developmentsin the Euro era and the U.S markets and advise the top management on the economicconditions in both markets. You have collected data on the euro area yields of the centralgovernment bonds and the U.S. treasury bond yields. For this purpose, you havedownloaded the following data from the European Central Bank and the U.S FederalReserve Bank on 24thSeptember 2020 (Mo = month, Yr = Year):24/09/2020Time to MaturityEuro area CentralGovernment Bond YieldRatesU.S. TreasuryBond YieldRates1 Mo-0.08%3 Mo-0.60%0.10%6 Mo-0.62%0.11%1 Yr-0.66%0.12%2 Yr-0.71%0.14%3 Yr-0.74%0.16%4 Yr-0.74%-5 Yr-0.72%0.27%7 Yr-0.63%0.46%10 Yr-0.49%0.67%20 Yr-0.17%1.19%30 Yr-0.05%1.40%REQUIRED:1)Considering both yield rates on 24thSeptember 2020, depict the yield curves chartsand describe the implied market outlook in the Euro area and the U.S. market to thetop management.[4 marks].BAFI 1002 Financial Markets, Semester 2,2020Page 1 of 8
BAFI 1002 Financial Markets, Semester 2,2020Page 2 of 8
1) The market yield represents the current rate of return expected on a bond at a specific point intime. The market yield changes overtime following the supply and demand of bond to themarket. It can be established from the graph that the U.S treasury bond yield rates are strongerthan the Euro area Central Government bond yield rates. As the graphs progress to the 30 yearmark the yield rate slowly increase rapidly for both markets this is due to the fact that the longerthe maturity the greater the risk for inflation to occur.

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Term
Spring
Professor
PamelaC.Kariofiles

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