Help please, finance, Other Engineering

Assignment Help:
Judy Johnson is choosing between investing in two Treasury securities
that mature in five years and have par values of $1,000. One is
a Treasury note paying an annual coupon of 5.06 percent. The other
is a TIPS which pays 3 percent interest annually.

a.If inflation remains constant at 2 percent annually over the
next five years, what will be Judy’s annual interest income
from the TIPS bond? From the Treasury note?
If inflation over the next five years is 2%, the principle value rises to $1000 plus 2% or $1,020. The effective interest, what we are effectively earning on the tips with the inflation, is 5.06% - 2% = 3.06%. Judy’s annual interest income from the TIPS bond = 1000 x 0.02 x 5 = $100
Judy''s annual interest income from the TIPS bond
First year: value: 1020 interest 30.6
Second year: value: 1040.4 interest: 31.21
Third year: value: 1061.21 interest: 31.84
Fourth year value: 1082.43 interest: 32.47
Fifth year value: 1104.08 interest: 33.12

Judy''s annual interest income from the Treasury note
First year: value: 1020 interest 51.61
Second year: value: 1040.4 interest: 52.64
Third year: value: 1061.21 interest: 53.70
Fourth year value: 1082.43 interest: 54.77
Fifth year value: 1104.08 interest: 55.87

b. How much interest will Judy receive over the five years from
the Treasury note? From the TIPS?
Interest from Treasury note: 205.76
Interest The TIPS: 333.95

c. When each bond matures, what par value will Judy receive
from the Treasury note? The TIPS? If the bond matures 3 %, then Judy should receive a value of $30.00
$.03 % x $1,000 = $30.00

d. After five years, what is Judy’s total income (interest par)
from each bond? Should she use this total as a way of deciding
which bond to purchase?



Related Discussions:- Help please, finance

Power system analysis, I need a project in Load impact in power flow((const...

I need a project in Load impact in power flow((constant power, constant impedance, constant current, induction motor). Report from 3 articles source and simulation in powerworld s

Capacitive transducers, Capacitive transducers Consider a capacitor con...

Capacitive transducers Consider a capacitor consisting of two parallel conducting plates with an insulator in between. Its capictance is C = ε 0 ε r  A/d where ε

Corporate finance, An investment project provides cash inflows of $730 per ...

An investment project provides cash inflows of $730 per year for eight years. What is the project payback period if the initial cost is $3,500? What if the initial cost is $5,000?

Ratio analysis, calculate inventory turnover ratio, when only given current...

calculate inventory turnover ratio, when only given current assets $100,000, current liabilities, $25,000 sales $200,000 and quick ratio=1.5

Differentiator, Differentiator: With negative feedback applied through ...

Differentiator: With negative feedback applied through a resistor and the input signal through a capacitor, the circuit will perform the mathematical operation of differentiati

Auto cad, Assignment Title: Die Press Assembly Drawing The objective of th...

Assignment Title: Die Press Assembly Drawing The objective of this assignment is to demonstrate the following concepts of design. • Extrude • Revolve • Fillet • Dimensioning • To

MICRO PROCESSOR, Describe the operation an 8086 will perform when it excute...

Describe the operation an 8086 will perform when it excutes ADD AX,BX

Diffraction, Q.  What do you mean by diffraction? Distinguish between Fres...

Q.  What do you mean by diffraction? Distinguish between Fresnel's and Fraunhofer's classes of diffraction. Ans. The phenomena of diffraction in case of light was first observ

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd