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FINC 3330 Project 2
FINC 3330 Project 2
Seungho Baek
Due: Wednesday, Mar. 09, 2017, 06:29 P.M.
Consolidate all excel spreadsheets from part1 in a single Excel le. Please make a cover page (name and ID) in Sheet1 in your EXCEL le. To submit this project electronically, use Blackboard. DO NOT send me it via email. Please submit your project in a single EXCEL le. ONLY an EXCEL FILE will be accepted. You have write up with your own words. Do not copy from others' work. In the last page, you have to show all your references for your project in the last sheet in your Excel.
Part 1 Pricings for Money Market Securities Pricing and their Evaluation
Instruction: You have been retained by the SHB investment group as an investment analyst. Your boss, Seungho Baek, asks you to provide an analysis report explaining the performance of three money market instruments (3 month T-bill, 6 month T-Bill, and 1 year T-bill) from Jan 2001 to Dec 2016. To generate the analysis reports, you are required to use Federal Reserve Economic Data (FRED) 1 and download monthly historical 3 month T-bill secondary market rate, 6 month T-bill secondary market rate and 1 year T-bill secondary market rate from Jan. 2001 to Dec. 2016. Note that all these market rate are generated by discount basis. In order to compute T-bill price, you need to change the equation as in Lecture 2 (pp.19). Let us suppose that the value of denomination for three T-bills is $ 100. Then the equation for a bank discount rate, d is given by:
d =
100 P
360
(1)
100
n
where P is the market price of the T-bill, and n is the number of days to maturity. From the above equation, the formula of T-bill price is speci ed as
P = 100[1
n
d]
(2)
360
where d is a discount yield basis, n is the number of days to maturity, and P is the price of the T-bill.
Problem 1. Compute descriptive statistics such as mean, standard deviation, minimum, and maximum for three T-bill rates and explain these statistics for each company. Based on your analysis, list the highest return, second highest return and the least return.
1https://fred.stlouisfed.org/
1
Problem 2. Compute all the prices for three money market instruments from Jan. 2001 to Dec. 2016 using equation (2) and generate a set of descriptive statistics for three assets. Based on the results of descriptive statistics, select the most, second most, and the least expensive T-bill security based on average prices.2
where P is the market price of the T-bill, and n is the number of days to maturity. From the above equation, the formula of T-bill price is speci ed as
P = 100[1
n
d]
(3)
360
where d is a discount yield basis, n is the number of days to maturity, and P is the price of the T-bill.
Problem 3. To make all the T-bill rates comparable, convert discount T-bill rates to BEYs using equation. Using BEYs, generate descriptive statistics and select the highest, second highest BEY, and the least BEY. Compare the list of order that you select in problem 3 and that in problem1.
BEY =
100 P
365
(4)
P
n
Problem 4. Plot three time series BEYs and nd out the most peak in time series lines. Explain what happened in the era of the volatility peak.
2n=90 for three month T-bill, n=180 for six month T-bill, n=360 for 1 year T-bill
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