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

Vectors and Scalar., Application of Vector and Scalar quantities in Vector ...

Application of Vector and Scalar quantities in Vector Analysis subject

..introduction to networking, Explain bus topology and peer to peer network...

Explain bus topology and peer to peer network concepts

Aerodynamics, what is centrifugal twisting moment

what is centrifugal twisting moment

patch antenna, how to make patch antenna for wifi applicatoi

how to make patch antenna for wifi applicatoin

Fire safety management on railway stations, Fire safety management on railw...

Fire safety management on railway stations: Storage  tanks  are  not  allowed  above  underground  structures  or  within  a  certain distance of them. Some staff exits are

Find out the heat loss, A 3.6-cm inside diameter stainless steel pipe is be...

A 3.6-cm inside diameter stainless steel pipe is being used to convey a liquid food. The inside convective heat-transfer coefficient is 10 J/s.m2. o C. The pipe is 0.5 cm thick and

Isdn, Explain the meaning of numbering and addressing in ISDN network.

Explain the meaning of numbering and addressing in ISDN network.

Laurent polynomial, how to perform division of two laurent polynomials?

how to perform division of two laurent polynomials?

thermodynamics, Steam enters in the turbine at 6 MPa and 450 deg C and exp...

Steam enters in the turbine at 6 MPa and 450 deg C and expands at some intermediate pressure 60 % of steam is extracted and remainder expands to 10 kPa at this Investigate the effe

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