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

Aviation legislation - certificate of design, Aviation legislation - Certif...

Aviation legislation - Certificate of Design: During the construction, the manufacturer has to provide the C.A.A. with a Certificate of Design and also a Type Record for th

Liquid crystal display (lcd), Liquid crystal display (lcd): Liquid Crys...

Liquid crystal display (lcd): Liquid Crystal Displays (LCD) are not actually light sources - they generate no light, merely filtering incident light, in a controlled manner.  T

Flight dynamics - pitching moment, The centre of pressure (CP) is defined a...

The centre of pressure (CP) is defined as the point about which the resultant moment is zero; the net effect of the flow in terms of forces and moments would be the same as if the

Boroscope inspections of air craft engine, Boroscope inspections: Boros...

Boroscope inspections: Boroscope inspections involve looking at components within an engine using an optical probe. The probes are inserted in to the engine through ports in th

Mechanical engineering, What is the specific heat of water at different pre...

What is the specific heat of water at different pressure and different temperature? Is it possible to boil the water below atmospheric pressure and use as a hot bathing water?

Derivative securities, Let C (K) denote a European vanilla Call option with...

Let C (K) denote a European vanilla Call option with strike price K. Assume that all options are identical except for strike price, and strike prices satisfy K1 What are the no-ar

Applied Physics, what types of fringes will be formed if white light is use...

what types of fringes will be formed if white light is used in a Michelson''s interferometer

Hot and cold working, the amount of cold working metal can withstand is dir...

the amount of cold working metal can withstand is directly related to which properties? name two and also discuss the effect that cold working has upon these properties?

Civil sit problems & its solution, two frames are not joint properly so cre...

two frames are not joint properly so create gap between two frames so material lick from this gap

Analog digital converter , Analog digital converter  Analog digital con...

Analog digital converter  Analog digital converter digitises the conditioned signal and presents it in a digital form, which is more convenient for long distance transmission,

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