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

Wire drawing, Wire Drawing involves pulling the metal through a die by mea...

Wire Drawing involves pulling the metal through a die by means of tensile force applied to the exit side of the die.          A typical wire drawing operation is shown in fig.

How do comets get their tails, How do comets get their tails? - Most comet...

How do comets get their tails? - Most comets stay frozen in the outer solar system. Only a few enter the inner solar system where they can grow tails. - When a comet nears the sun

What is the difference between real money & nominal money?, What is the dif...

What is the difference between real money & nominal money?  Moderate cash is relevant to the evaluate of keeping track of. nominal figure is what is published on the expenses. w

Aeronautical, apply equations to solve problems for specified aerodynamic a...

apply equations to solve problems for specified aerodynamic applications. Need some inputs regarding this.

Students industrial work experience, Where are the recomended areas or indu...

Where are the recomended areas or industries where an Agricultural Engineering Student can apply for industrial training?

Software design principles, explain the design should be traceable to the a...

explain the design should be traceable to the analysis model

Aerospace computational techniques, Bearing stresses are very common in aer...

Bearing stresses are very common in aerospace engineering.  It occurs on the surface of contact between any two structural members.  Bolts, pins, and rivets are classic examples of

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