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

Numerical method, find the newton raphson iterative formula for a reciproca...

find the newton raphson iterative formula for a reciprocal of a number N and hence find the value of 1/23.correct to 5 place of decimal

MICRO PROCESSOR, Describe the operation an 8086 will perform when it excute...

Describe the operation an 8086 will perform when it excutes ADD AX,BX

Found ash content, determine the ash content in given sample

determine the ash content in given sample

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

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

Longitudinal trim, A trimmed flight condition is perhaps best thought of as...

A trimmed flight condition is perhaps best thought of as an equilibrium condition. The simplest trim condition is straight-and-level flight, in which the forces (weight, propulsive

Electronic engine control systems - aircraft engine, Electronic engine cont...

Electronic engine control systems : Advances in gas turbine technology have demanded more precise control of engine parameters than can be provided by hydromechanical fuel cont

Flight control - linear system, Representations of a linear system The ...

Representations of a linear system The linear system of Section is shown in block diagram To determine the responseof the output of the system y(t) to an input u(t) the initial

Heat treatment., Why low carbon steel can not be quench hardened?

Why low carbon steel can not be quench hardened?

Java, I''m trying to figure out how to use a for and while loop to: print e...

I''m trying to figure out how to use a for and while loop to: print each word found in 4 columns across the output page, in the order they were found. This means you must print the

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