In: Finance
Use the following information to draw XYZ's yield curve, using:
- Average real risk free rate of return is constant over 30 years at 1%
- Inflation rate over 30 years is expected to be 4% in the first five years, 2% in year 6-15, and 1% in year 16-30
- DRP is constant at 1.5%
- LP is constant at 0.5%
- MRP derived from MRP=(t-1)*0.1%
According to the information given:
each data is calculated and YTM is equal to = real risk free rate + Inflation + DRP + LP + MRP
MRP for example is calculated as follows:
year 5 = (5 - 1 ) * 0.1% = 0.4%
Year 10 = (10 -1 ) * 0.1% = 0.9%
Year | real | inflation rate | DRP | LP | MRP | ytm |
1 | 1% | 4% | 1.50% | 0.50% | 0 | 7.00% |
2 | 1% | 4% | 1.50% | 0.50% | 0.001 | 7.10% |
3 | 1% | 4% | 1.50% | 0.50% | 0.002 | 7.20% |
4 | 1% | 4% | 1.50% | 0.50% | 0.003 | 7.30% |
5 | 1% | 4% | 1.50% | 0.50% | 0.004 | 7.40% |
6 | 1% | 2% | 1.50% | 0.50% | 0.005 | 5.50% |
7 | 1% | 2% | 1.50% | 0.50% | 0.006 | 5.60% |
8 | 1% | 2% | 1.50% | 0.50% | 0.007 | 5.70% |
9 | 1% | 2% | 1.50% | 0.50% | 0.008 | 5.80% |
10 | 1% | 2% | 1.50% | 0.50% | 0.009 | 5.90% |
11 | 1% | 2% | 1.50% | 0.50% | 0.01 | 6.00% |
12 | 1% | 2% | 1.50% | 0.50% | 0.011 | 6.10% |
13 | 1% | 2% | 1.50% | 0.50% | 0.012 | 6.20% |
14 | 1% | 2% | 1.50% | 0.50% | 0.013 | 6.30% |
15 | 1% | 2% | 1.50% | 0.50% | 0.014 | 6.40% |
16 | 1% | 1% | 1.50% | 0.50% | 0.015 | 5.50% |
17 | 1% | 1% | 1.50% | 0.50% | 0.016 | 5.60% |
18 | 1% | 1% | 1.50% | 0.50% | 0.017 | 5.70% |
19 | 1% | 1% | 1.50% | 0.50% | 0.018 | 5.80% |
20 | 1% | 1% | 1.50% | 0.50% | 0.019 | 5.90% |
21 | 1% | 1% | 1.50% | 0.50% | 0.02 | 6.00% |
22 | 1% | 1% | 1.50% | 0.50% | 0.021 | 6.10% |
23 | 1% | 1% | 1.50% | 0.50% | 0.022 | 6.20% |
24 | 1% | 1% | 1.50% | 0.50% | 0.023 | 6.30% |
25 | 1% | 1% | 1.50% | 0.50% | 0.024 | 6.40% |
26 | 1% | 1% | 1.50% | 0.50% | 0.025 | 6.50% |
27 | 1% | 1% | 1.50% | 0.50% | 0.026 | 6.60% |
28 | 1% | 1% | 1.50% | 0.50% | 0.027 | 6.70% |
29 | 1% | 1% | 1.50% | 0.50% | 0.028 | 6.80% |
30 | 1% | 1% | 1.50% | 0.50% | 0.029 | 6.90% |
Only Column 1 and 7 is used to create the chart as follows:
Select column 1 and 2 and then go to insert chart, select scatter with smooth lines and marker.
With axis marked.