Question 1 - Definitions - some research may be required
Please provide a brief description of the following (1-3 sentences each):
(a) 1-month CORRA
(b) Fed Funds Rate
(c) Prime Rate
(d) AAA rated sovereign bond
(e) LIBOR
Question 2 - Canadian Interest Rates
To answer this question, you need to obtain data from the Bank of Canada website. However, some of the data is on other sections at the Bank of Canada and you may need to use the search function in the top right hand corner of the page. You can search using the series identifier such as V39079 for the target overnight rate.
(a) Please provide the following Canadian data as of the last day in 2008, 2011, 2015 and 2017.
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Interest Rates
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2008
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2011
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2015
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2017
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Target for the overnight rate (V39079)
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1-month Canada Treasury Bill Rate (V39063)
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1-month Bankers' Acceptance Rate (V39068)
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1-month Prime Corporate Paper Rate (V39072)
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Government of Canada (GOC) long term bond yield (V39056)
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(b) Based on the data you obtained in (a) above, provide the interest rate difference (or "spread") between the following rates for the dates specified above:
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Interest Rate Spreads
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2008
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2011
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2015
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2017
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Bankers Acceptances and Treasury Bills (Canada - 1 month)
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Prime Corporate Paper and Treasury Bills (Canada - 1 month)
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Government of Canada (GOC) long term bond yield (V39056) and 1-month Canada Treasury Bill Rate (V39063)
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(c) Briefly explain what each of the three interest rate differences or "spreads" you calculated in Question 2(b) represents.
(Your explanation of each spread should be 1 to 3 sentences.)
(d) Briefly explainwhy the spreads you calculated in part (b) above change over time. (Your explanation should be 2 or 3 sentences.)
Question 3 - Government of Canada Bonds
You may find the following Bank of Canada article useful to answer this question:
[Inflation expectations and Real Return Bonds]
(a) Briefly explain the difference between a Government of Canada nominal bond and a Government of Canada Real return bond.(Your explanation should be 3 or 4 sentences)
(b) Retrieve the weekly yields for the Government of Canada long-term bond (V80691326) and the long term Real Return Bond yield (V80691347) from February 29, 2008 to January 17, 2018 and save your data to a file.
Calculate the difference between these two yields (long-term bond yield minus real return bond yield) and plot it on a graph. Include your graph but do NOT include the datain your assignment.
(c) What does the difference between these two yields represent?
Question 4- Bond Quotations
(a) On CANDEAL's web page at candeal . find bond quotes for the following two corporate bonds and the Government of Canada bond listed here and complete the table below:
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Issuer
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Maturity Date
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Moody's
Rating
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S&P
Rating
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Bid
Price
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Bid
Yield
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Ask
Yield
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Ask Price
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Hydro One
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HYDONE 4.39
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ROGERS
Communication
Inc. (RCI)
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RCICN
6.68
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Canada
5.00
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Maturing in 2037
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(b) Explain what the Bid yield and Ask yield represent. (Some research may be required.)
(c) Explain the relationship between the Ask price and the bond's par value. What has happened to interest rates since the issue of these bonds?
(d) Discuss the difference in the long-term bond ratings (from both S&P and Moody's) for Hydro One, Rogers Communications, and Canada. How is this reflected in the yield for these bonds?
Note: if these bonds are not quoted on CANDEAL please use a different bond from the same issuer, since what is available for sale constantly changes in the bond market. If you do this, please note clearly the bond you used instead (coupon and maturity date). Also, you will need to google to find the bond ratings for each issuer. The best way is to search for "investor relations" for each company, and generally for Canada credit ratings.
Question 5 - Video Questions
Please watch the following video interviews with Richard Nesbitt, which areposted on Wiley Plus Assignments (Group Assignment 1: Q5Videos), and then answer the questions below:
Corner Suite Video: The Role of Financial Markets
Corner Suite Video: The Role of the Stock Market
Corner Suite Video: Banking and Compliance: Canadian Banking
Corner Suite Video: Banking and Compliance: Bank Scandals and Compliance
Corner Suite Video: Banking and Compliance: What Keeps Bankers Up at Night
(a) According to Richard Nesbitt, what are the risks that are currently "keeping Canadian bank managers up at night"?(1-3 sentences)
(b) Banking crises in the past have been caused when banks __________________ long-term and __________________ short-term.
(c) Why were Canadian banks able to remain stable during the financial crisis of 2008? (2 reasons)(Maximum 4 sentences)
(d) What has been the main change in the business of stock market trading over the past twenty years?(1-3 sentences)
(e) Name the retirement income plan that provides Canadians with income upon retirement.
Please watch the following video interviews with Marlene Puffer, which are posted on Wiley Plus Assignments (Group Assignment 1: Q5 Videos), and then answer the questions below:
Corner Suite Video: The Fixed Income Market: Background
Corner Suite Video: The Fixed Income Market: Bond Market Overview- Structure and Players
Corner Suite Video: The Fixed Income Market: Determinants of Bond Yields
(f) Name five main participants in the bond market.
(g) Name a type of investment vehicle now available to retail investors to provide access to the bond market. What is the advantage of this type of investment for retail investors? (2-3 sentences)
(h) Why is there a big difference in the yield (price) of bonds rated BBB compared to bonds rated BB (high)?