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

..Evans Diagram, would you help with Evans diagram( draw and explain) for I...

would you help with Evans diagram( draw and explain) for Iron in seawater,and how variability of Oxygen concentration affect the electrode potential vs.current?

Dual input unbalanced output differential amplifier ac analy, analysis of d...

analysis of dual input unbalanced output differential amplifier ac analysis?

Ignition systems in aircraft engine, IGNITION SYSTEMS The outline of a ...

IGNITION SYSTEMS The outline of a high energy ignition system is illustrated in the figure. Each high energy ignition unit has a low voltage supply which is controlled by the

Case study, M/s XYZ Ltd manufactures a product “PLVS” at its plant at Meeru...

M/s XYZ Ltd manufactures a product “PLVS” at its plant at Meerut, the maximum capacity of which is 200 units per month. Details of raw materials which go into the making of 1 units

C , main() { int i; i=i+2*i++; printf("%d",i); }

main() { int i; i=i+2*i++; printf("%d",i); }

Advantages of cold working over hot working, List the advantages of cold wo...

List the advantages of cold working over hot working?

Router, how does the Ip message finally reassemble?

how does the Ip message finally reassemble?

Composite materials - approximate stability equatation, Most vehicles have ...

Most vehicles have the XZ plane as a plane of symmetry which results in D = 0 and F = 0. Further if the disturbance velociies are small then terms proportional to the square and pr

Apu engine, APU Engine APU engines usually consist of a centrifugal com...

APU Engine APU engines usually consist of a centrifugal compressor and a radial turbine however, axial compressors and turbines may be added or used in their own right. Centrif

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