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

Multi-threading problem in operating system, multi-threading problem in ope...

multi-threading problem in operating system 9. With multi-threading, each thread has its own value for the program counter, its own register save area, and its own stack, but all t

Level indicator., i have a project to be completed, the project is, How to ...

i have a project to be completed, the project is, How to make a device which warns you when your water reservoir is full?? i want the name of device needed and the way to complete

Engineering machnics, a part of machine has a reciprocating motion which is...

a part of machine has a reciprocating motion which is simple harmonic making 200 complete oscillations in a minute.the part weight 45 N.determine the accelerating force upon it

Dsp, h(t) is an analog IIR filter, with the poles lambda_1 = -1, lambda_2 =...

h(t) is an analog IIR filter, with the poles lambda_1 = -1, lambda_2 = -1+i, lambda_3 = -1-i and no zeros. let h[n] be a digital IIR filter with poles which defined by e^lambda_i a

Tool life, hi I''m doing research in tool life of solid carbide endmills ...

hi I''m doing research in tool life of solid carbide endmills and I was looking at your formulas. I was wondering if tell me or where I can find the data required for these formu

Mining, Students are to undertake a tunnel blast design for the following c...

Students are to undertake a tunnel blast design for the following conditions: • Tunnel is 5.5m wide by 5.5.m high • Rock is a granite with a UCS of 300 MPa • Drill hole diameter is

Aviation legislation - permit to fly, PERMIT TO FLY A Permit to Fly may...

PERMIT TO FLY A Permit to Fly may be issued to an aircraft that does not, for a variety of reasons, fully comply for a Certificate of Airworthiness. These reasons might be b

Kan bans in manufacturing enviornment, what are the advantages of dual-card...

what are the advantages of dual-card Kanban system campared to single card in a manufacturing environment

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