Reference no: EM131043529
Consider an investor who, on January 1, 2016, purchases a TIPS bond with an original principal of $112,000, an 10 percent annual (or 5 percent semiannual) coupon rate, and 10 years to maturity.
a. If the semiannual inflation rate during the first six months is 0.3 percent, calculate the principal amount used to determine the first coupon payment and the first coupon payment (paid on June 30, 2016). (Round your answer to 2 decimal places. (e.g., 32.16))
Coupon payment $
b. From your answer to part a, calculate the inflation-adjusted principal at the beginning of the second six months.
Inflation-adjusted principal $
c. Suppose that the semiannual inflation rate for the second six-month period is 1.4 percent. Calculate the inflation-adjusted principal at the end of the second six months (on December 31, 2016) and the coupon payment to the investor for the second six-month period. What is the inflation-adjusted principal on this coupon payment date? (Round your answers to 2 decimal places. (e.g., 32.16))
Inflation-adjusted principal at the end of the second six months $
Coupon payment $
Inflation-adjusted principal on this coupon
Calculate the liquidity risk premium
: Tom and Sue’s Flowers, Inc.’s, 10-year bonds are currently yielding a return of 8.55 percent. The expected inflation premium is 2.55 percent annually and the real risk-free rate is expected to be 3.55 percent annually over the next 10 years. Calculat..
|
What is the appropriate standard deviation
: If the standard deviation of Euro percentage changes is 10% annualized, what is the appropriate standard deviation to use for assessing the risk on a 1-month investment? Next, assuming an expected percentage appreciation for Euro of 6% per year (0.5%..
|
What bond is current yield better approximation to yield
: Suppose an investor, desiring to earn a higher interest than the average paid by bank on savings, purchases two bonds, say bond A and bond B, and intends to sell them immediately after getting the third coupon payment. The characteristics of the two ..
|
Calculate total estimated bad debt for the months
: Eighty five percent of sales are on credit. Two percent of credit sales are never collected; thirty percent of credit sales are paid for in the month of sale and the remaining credit sales are collected in the following month. Calculate balance in it..
|
Determine the first coupon payment
: Consider an investor who, on January 1, 2016, purchases a TIPS bond with an original principal of $112,000, an 10 percent annual (or 5 percent semiannual) coupon rate, and 10 years to maturity. If the semiannual inflation rate during the first six mo..
|
Four-year project to improve its production efficiency
: CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $493,000 is estimated to result in $192,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Ta..
|
Mortgage with biweekly payments
: Five years ago you took out a 15-year mortgage with biweekly payments (you make a payment every two weeks) to purchase your home. The interest rate is 7% per year and the biweekly payment is $800. What is the outstanding balance on the mortgage if th..
|
Common stock-capital surplus retained earnings
: The company with the common equity accounts shown here has declared a 15 percent stock dividend when the market value of its stock is $41 per share. What would be the number of shares outstanding, after the distribution of the stock dividend? New sha..
|
Preferred stock generally has a higher component cost
: Preferred stock generally has a higher component cost of capital to the firm than does common stock. By law in most states, all preferred stock must be cumulative, meaning that the compounded total of all unpaid preferred dividends must be paid befor..
|