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

Propeller efficiency, PROPELLER EFFICIENCY: The propeller is 80 - 87% e...

PROPELLER EFFICIENCY: The propeller is 80 - 87% efficient up to approximately 400 mph.  Generally, beyond this performance will fall off, although new materials and improved bl

Robotics, how to become robotics engneer

how to become robotics engneer

#title., problem on dissociation constant

problem on dissociation constant

Computational aerodynamics-guided reading, It is recommended that if possib...

It is recommended that if possible you should buy a copy of this book. It will prove useful for the new fourth year configurational aerodynamics module also. Blackwells bookshop ha

Providing alternative escape routes, Providing alternative escape routes: ...

Providing alternative escape routes: The first thing to check is if everyone can turn away from the fire and move safely away from it. For this to be the case there will

Invalidation of certificate of airworthiness, INVALIDATION OF CERTIFICATE O...

INVALIDATION OF CERTIFICATE OF AIRWORTHINESS Listed below are the four major reasons why a Certificate of Airworthiness could become invalid. There may be other specific reason

Mechanical design 2, Mechanical Design (48650) – Spring Semester 2012 Optim...

Mechanical Design (48650) – Spring Semester 2012 Optimisation Assignment – BUILDING A ROAD Teams of THREE to FIVE [3 to 5] – Worth 20% of the Semester Grade Due: Thursday 23rd Marc

Securities analysis coursework, Company: British Sky Broadcasting Topic: Yo...

Company: British Sky Broadcasting Topic: You are a security analyst in a large investment house and must write a report on a real stock of your choice, giving a buy, hold or sell r

Ideal intake conditions - aircraft engine, Ideal intake conditions: For...

Ideal intake conditions: For air to flow smoothly through a compressor, its velocity should be about 0.5 mach at the compressor inlet; this includes aircraft flying faster than

Centrifugal flow - compressors in aircraft, Centrifugal flow - Compressors ...

Centrifugal flow - Compressors in Aircraft: The centrifugal impeller is rotated at high speed by the turbine and centrifugal action causes the air between the impeller vanes to

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