User Account

All Pages

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

Security Analysis & Portfolio management, ABC Ltd. has an investment opport...

ABC Ltd. has an investment opportunity available which will involve a capital outlay in each of the next 2 years and which will produce benefits during the following 3 years. A sum

Archimedes Screw, How to I make my archimedes screw work?

How to I make my archimedes screw work?

Financial management, which type of finanacing is appropriate to each firm

which type of finanacing is appropriate to each firm

Susceptibility - fire safety management, Susceptibility: Susceptibilit...

Susceptibility: Susceptibility to products of combustion, which includes metabolism, lung capacity, pulmonary disease, allergies, or other physical limitations that affect sur

Shift registers, Shift registers A register is a number of flip-flops a...

Shift registers A register is a number of flip-flops arranged in a circuit used for storing data.  A shift register is one that is designed to move the data along the register.

Armature cipl, in which type of armature winding Equaliser ring dummy coils...

in which type of armature winding Equaliser ring dummy coils are used

Engine protection devices - aircraft engine, Engine protection devices : ...

Engine protection devices : Described below are typical protection devices that will override any excessive demands made on the engine by the pilot or by the control units.

Capital structure, how to identify the capital structure?

how to identify the capital structure?

Work shop technology, make an assingment on production

make an assingment on production

Telecommunication, history of telecommunication

history of telecommunication

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd