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

Paper engineering hw, if you have a sample of lap pulp that is at 9% moistu...

if you have a sample of lap pulp that is at 9% moisture how much of it do you need to be weighed to be put into a valley beater

Vodeo transmission via laser, i want to make a project which is based on vi...

i want to make a project which is based on video transmission via laser ..please help me

Methods of strengthen crystalline materials against plastic , Q. Describe t...

Q. Describe the four main methods of strengthen crystalline materials against plastic yield. Ans. (1) Work Hardening: Strain hardening or work hardening is a phenomenon which

What is the meaning of context-awareness, Question : (a) The Guide proj...

Question : (a) The Guide project has been developed to provide city visitors with a hand-held context-aware tourist guide. (i) In this case, what is the meaning of context-a

Cash Flows Components, A typical investment will have three components of c...

A typical investment will have three components of cash flows: • Initial investment • Annual net cash flows • Terminal cash flows. Initial investment Initial investme

Magnetic detector plug debris analysis of aircraft , Magnetic Detector Plug...

Magnetic Detector Plug Debris Analysis of aircraft : The magnetic chip detectors (MCDs), are small, permanent magnets installed in the scavenge/return lines of the engine oil s

Flight dynamics - velocity component, Force, Moment, Velocity and Angular V...

Force, Moment, Velocity and Angular Velocity Components • Aerodynamic Force Components - X, Y, Z • Velocity Components - U, V, W (or Vx, Vy, Vx) • Angular Velocity Components - P,

Thermodynamics, original temp. of plate is 25 degree c.when put in burnace ...

original temp. of plate is 25 degree c.when put in burnace its upper part is 250 c and lower is 100 and mass is 56kg.find out heat transfer

Metallurgy engg., why practical engineering materials are homogeneous and i...

why practical engineering materials are homogeneous and isotropic?

Highway maintenance, Various types of Bituminous Course? Explain each

Various types of Bituminous Course? Explain each

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