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

Flight dynamics - velocity component, Force, Moment, Velocity and Angular V...

Force, Moment, Velocity and Angular Velocity Components • Aerodynamic Force Components - X, Y, Z • Velocity Components - U, V, W (or Vx, Vy, Vx) • Angular Velocity Components - P,

Inlet duct arrangement in aircraft engine, Inlet duct arrangement in Aircra...

Inlet duct arrangement in Aircraft Engine: Wherever the APU is located, ducting will be required to bring air to the APU inlet. In figure 18.9. we can see that the inlet duct

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

Monolithic ic, Monolithic IC: The monolithic IC is constructed in basic...

Monolithic IC: The monolithic IC is constructed in basically the same manner as a "Bipolar Transistor", although the overall process requires a few additional steps because of

Blending or mixing, To achieve successful results in powder metallurgy the ...

To achieve successful results in powder metallurgy the metallic powder must be thoroughly homogenized. The term blending and mixing are both used in this content. Blending refers t

Series of cash flows in economical engineering, Series of Cash Flows M...

Series of Cash Flows Most engineering economic analysis involve more than a single return occurring after the investment is made. In such cases, the present worth or the futur

Installation of propeller, INSTALLATION OF PROPELLER The method of inst...

INSTALLATION OF PROPELLER The method of installation will depend on the type of propeller, and all instructions detailed in the appropriate AMM should be carefully followed; th

Conceptual models, Can you describe an example of a conceptual model?

Can you describe an example of a conceptual model?

Technical Paper, I need help summarizing a technical paper.

I need help summarizing a technical paper.

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

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