Question C (20 points) Consider the monthly yields of Moody s Aaa& Baa seasoned bonds from January 1919 to November, 2011

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Question C (20 points) Consider the monthly yields of Moody s Aaa& Baa seasoned bonds from January 1919 to November, 2011. The data are obtained from FRED of Federal Reserve Bank of St. Louis and in the file m-Aaa-1 911 txt and m-Baa— 1 911 txt. What is the relationship between the two series? To answer this question, take the log transformation of the data to build a time series model for the Aaa yields using Baa yields as an explanatory variable. Write down the fitted model, including model checking. (hint: follow the procedure of the case study of 1- and 3- year Treasury rates that we discussed in the class)