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

Thin-film ic, THIN-FILM IC: Unlike the monolithic IC's, which are forme...

THIN-FILM IC: Unlike the monolithic IC's, which are formed within a semiconductor material (substrate), the thin-film circuit is formed on the surface of an insulating substrat

Geology, write and explain the different geophysical methods

write and explain the different geophysical methods

Cro, derive the expression of deflection of beam in CRO

derive the expression of deflection of beam in CRO

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

Compacting or briquetting, The operation of heating a green compact to an e...

The operation of heating a green compact to an elevated temperature is known as sintering. It is a process by which solid bodies are bonded by atomic forces. It is carried out belo

Engine indication systems in aircraft, Engine indication systems in Aircraf...

Engine indication systems in Aircraft: Engine indications are very important to the crew of a powered aircraft, as they indicate one of the primary parameters needed for flight

Question for wator resources engineering, Compute the motor size required t...

Compute the motor size required to pump 28.3 cms through a 3,050 m long, 3.66 m diameter pipeline to an upper reservoir 610 m above the lower reservoir. Use a friction facter of 0.

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