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

Apu starting sequence in aircraft , Apu starting sequence in aircraft : ...

Apu starting sequence in aircraft : In figure the APU control unit receives its power from the aircraft battery. By moving the APU switch to ‘ON', power is provided to the i

Re-heat nozzles in aircraft engine, Re-Heat Nozzles : If re-heat was fi...

Re-Heat Nozzles : If re-heat was fitted to an engine with a standard sized fixed area propelling nozzle, the expansion of gases caused by the use of re-heat would increase the

Propeller track, PROPELLER TRACK An out of track propeller will suffer ...

PROPELLER TRACK An out of track propeller will suffer an imbalance caused by the Dynamic and Aerodynamic being out of balance. Propeller track is the path followed by a blad

Mechanics, an electric bulb weighing 15n hangs from a point C by 2 strings ...

an electric bulb weighing 15n hangs from a point C by 2 strings AC and BC .string AC is inclined at 60degree to horizontal and BC at 45 degree to vertical.find tension in string.

Electronics, square wave generator using op amp

square wave generator using op amp

Multirate filters, obtain the polyphase structure H(Z)=1-3Z^-1/1+4Z^-1

obtain the polyphase structure H(Z)=1-3Z^-1/1+4Z^-1

Fridge, R-134a is compressed in an adiabatic compressor from saturated vapo...

R-134a is compressed in an adiabatic compressor from saturated vapor at 100kPa to a final state at 1 MPa and 50 degrees Celcius. Before entering the compressor, the R-134a receive

Bragg''s spectrometer , It consists o a source of x ray, with a number of c...

It consists o a source of x ray, with a number of collimated slits. Crystal under investigation is mounted on a table, and the position of this table can be recorded on vernier sca

Kalman filtering , Kalman Filtering  All of the measurements generat...

Kalman Filtering  All of the measurements generated by the seeker and the navigation system/rate gyros are noisy, and therefore need to be filtered.  The Kalman filter, a

Four stroke diesel engine, FOUR STROKE DIESEL ENGINE: T he cycle of ev...

FOUR STROKE DIESEL ENGINE: T he cycle of events that takes place in a four -stroke diesel engine has been shown. Unlike the petrol which drawn in a mixture of air and petrol,

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