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

Creep, strain rate on creep

strain rate on creep

Laser beam welding, In laser beam welding coalescence is produced by the he...

In laser beam welding coalescence is produced by the heat obtained from the application of a concentrated coherent light beam impining upon the surface to be joined .   It con

Resolving power and rayleigh criterion of resolution, Q. Explain Rayleigh c...

Q. Explain Rayleigh criterion of resolution. What is meant by resolving power of grating? Ans.   Resolving Power (i)  Meaning of Resolution : The resolving power of

Allowances for pattern, Allowances for pattern : A pattern is always made ...

Allowances for pattern : A pattern is always made larger than the required size of the casting in order to allow for various factor, such as shrinkage, machining, distortion and r

Which scheme provides the best spectrum capacity, Question: (a) What a...

Question: (a) What are the criteria that a frequency planner and a network engineer need to consider during cellular planning and design. (b) Assuming that you work as a c

Grid generator, Grid Generator The grid generator of FP sets up a compu...

Grid Generator The grid generator of FP sets up a computing grid in a transform space that consists of the interior of a unit length circular cylinder of unit radius, and compu

Thermofluids 1- aeronautical option, general energy equation, non- flow ene...

general energy equation, non- flow energy equation, steady flow equation, joule''s law

Health care finance basic tool for nonfinancial managers, based on your man...

based on your managemet style or your personal perspective, discuss how you developed your viewpoint how it will influence the way you manage, and what challenges you migt face if

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