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

Casting alloys, Casting Alloys are -             (i) Permanent moulds...

Casting Alloys are -             (i) Permanent moulds are commonly used for the casting of grey iron, aluminum alloys and magnesium alloys.             (ii) Slush Casting

Unit operations , Can you guys Solve Unit Operations Problems in Chemical e...

Can you guys Solve Unit Operations Problems in Chemical engineering

Asymmetric effect - propeller, Asymmetric Effect In general the axis o...

Asymmetric Effect In general the axis of the propeller will be inclined upwards to the direction of flight due to the angle of attack of the aircraft.   This causes the dow

Diffusion, distingush between short range and long range diffusion

distingush between short range and long range diffusion

Pattern practices, Pattern Practices : A pattern may be defined as a repli...

Pattern Practices : A pattern may be defined as a replica or fascimile model of the desired casting which, when packed or embedded in a appropriate moulding material, creates a ca

What is inflation?, What Is Inflation? In economic terms, blowing up is ...

What Is Inflation? In economic terms, blowing up is the development of the costs of products or solutions in the given economic climate over a time period. As the costs increase

Projects., Ten projects only agricultural engineer will have say

Ten projects only agricultural engineer will have say

Engine controls - aircraft engine, Engine controls: Engine controls are...

Engine controls: Engine controls are very similar to flying controls, and the same types of equipment are used, such as rods, bellcranks and cables. Most control systems use ei

model training, You are required to undertake the following tasks: 1.    ...

You are required to undertake the following tasks: 1.      Problem Identification Download the dataset assigned to you from the module Blackboard site. Read the data description

Infiltration enters, ways via which infiltration enters a sewer system

ways via which infiltration enters a sewer system

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