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

Water haedness, hardness of bore well water is less than sea water

hardness of bore well water is less than sea water

Inversion circle, what do you understand by inversion circle?

what do you understand by inversion circle?

Static unbalance-aircraft maintenance , Static Unbalance: This arises w...

Static Unbalance: This arises when two EQUAL unbalance masses are positioned at opposite ends of a rotor and spaced at 180 from each other. If placed on knife-edges, the rotor

Aerofoil aerodynamics , We now have some idea about what models are availab...

We now have some idea about what models are available to simulate the flow over an aerofoil, and also how to use the Hanley package to apply these methods. Keep referring to you

Avionic systems design- primed stability derivatives, Primed stability der...

Primed stability derivatives The rolling and yawing motions are coupled through the cross inertia I XZ due to rotation not being about the principal axes. Since in general air

Polymers, what are the merits and demerits of free radical

what are the merits and demerits of free radical

Riveting, Riveting  is a fixed fastening procedure in which the end of the ...

Riveting  is a fixed fastening procedure in which the end of the metal pin is pressed over or spread out by hammering operation. Wrought iron and steel are used for the riveting an

#title.plumbing/engineering., #i need help with plumbing/ engineering assig...

#i need help with plumbing/ engineering assignments, from an expert with australian codes, there is any chance,thank you .

Aerodynamics, what is centrifugal twisting moment

what is centrifugal twisting moment

Rated breaking torque, Consider a 3-hp, 220-V, 1800-r/min separately excite...

Consider a 3-hp, 220-V, 1800-r/min separately excited dcmotor controlled by a single-phase fully controlled rectifierwith an ac source voltage of 230Vat 60Hz.Assume that the full-l

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