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

Phase array modelling, QUESTION: Modelling of phase array antenna for medic...

QUESTION: Modelling of phase array antenna for medical imaging. INSTRUCTION: The expert must provide a correct mathematical model solution and detail by detail steps of how it can

Enthalpy, What is the deference between enthalpy anne internal energy u

What is the deference between enthalpy anne internal energy u

Techniques of capital budgeting, Techniques of capital budgeting There are ...

Techniques of capital budgeting There are a number of capital budgeting techniques used in the evaluation of a project. They are broadly classified under two categories: 1] Discoun

Human Motion Kinetics, Beginning from rest when theta=10 degrees, a 30-kg c...

Beginning from rest when theta=10 degrees, a 30-kg child slides without kinetic friction down the slide which is in the shape of a 2.5 meter circular arc. Determine the child''s sp

Post graduation, i am doing be in mechanical engg in india. so can i do my ...

i am doing be in mechanical engg in india. so can i do my masters in geoophysic ?

Fire safety management for commercial buildings, fire safety management for...

fire safety management for Commercial buildings: Commercial buildings where all the occupants are familiar with the building we also need to see evidence of satisfactory fire

Y 4 u, Ask questioy 4 men #Minimum 100 words accepted#

Ask questioy 4 men #Minimum 100 words accepted#

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