User Account

All Pages

Draw a time line specifying the cash flows the investor

Assignment Help Financial Management
Reference no: EM131581631

Assume a TIPS bond, with semi-annual coupon payment, has a coupon rate of 2%, and 1.5 years to maturity and an initial principal of $1,000.

The BEY spot rates to evaluate the bond are 2%, 3% and 4% for maturities .5, 1 and 1.5 years respectively. Furthermore, assume that the semi-annual inflation rates are 1.5%, 2% and 3% for the 3 semi-annual periods.

Calculate the following:

a. Calculate and draw a time line specifying the cash flows the investor would receive from the bond assume she holds it to maturity.

b. What is the annual BEY forward rates at t=0.5 (end of the first semi-annual)?

c. What is the bond dollar price and quote price (Round to the nearest 64th) per $1,000 at issue?

d. Assume the investor plans to buy 1 bond at beginning of the 2nd semi-annual at a quote price of 998-12+, reinvest the cashflow(s) at a BEY rate of 2% and hold the bond to maturity. What is the investor total return for this purchase?

Reference no: EM131581631

Questions Cloud

Papers must be properly attributed and cited appropriately : You will be a discussion and pick an Agency of Federal Law Enforcement Agency For example: U.S. Air Force Office of Special Investigations
Example of one hypothetical strategy : Provide an example of "one hypothetical strategy" and how the strategic review process might be conducted to monitor and review that strategy.
Which of the given are flows and stock : Which of the following are flows? Which are stocks? If a flow, which of the five major kind(s) of capital does it increase or decrease?
Construct the corresponding vector loop equation : Define and show on the figure the necessary vectors and their angles according to our convention and Construct the corresponding vector loop equations
Draw a time line specifying the cash flows the investor : Calculate and draw a time line specifying the cash flows the investor would receive from the bond assume she holds it to maturity.
International research project : You will use Australia for this Assignment. In addition to Australia, you will reference the shoe manufacturing firm.
Define a criminal justice professional as ethical : Why do we need ethics and morals when we have laws. If we refer to a criminal justice professional as ethical
What is nominal rate of return on these bonds : What is the nominal rate of return on these bonds?
What you learned about independence in the accounting : Submit a 100-150 word summary of what you learned about "independence" in the accounting profession

Reviews

Write a Review

Financial Management Questions & Answers

  Grandchildrens education while minimizing any transfer taxes

Martha, a 75-year-old widow, owns more than $8 million in assets. Martha’s son, Jonathan, has two children, ages 10 and 13. Her daughter, Annie, also has two children, ages 9 and 13. What planning opportunities can you suggest so that Martha can prov..

  Semiannual coupons is trading with a yield to maturity

Suppose a seven-year, $1,000 bond with a 7.8% coupon rate and semiannual coupons is trading with a yield to maturity of 6.61%.

  Insurance contracts is the principle of pooling of losses

The underlying principle of almost all insurance contracts is the principle of "pooling of losses".

  Experiencing rapid growth-dividends are expected to grow

Momsen Corp. is experiencing rapid growth. Dividends are expected to grow at 25 percent per year during the next three years, 15 percent over the following year, and then 6 percent per year indefinitely. The required return on this stock is 12 percen..

  What is initial cost of project including flotation costs

Western Wear is considering a project that requires an initial investment of $260,000. The firm maintains a debt-equity ratio of .40 and has a flotation cost of debt of 8 percent and a flotation cost of equity of 10.5 percent. The firm has sufficient..

  What is the firms wacc given a tax rate

Mullineaux Corporation has a target capital structure of 41 percent common stock, 4 percent preferred stock, and 55 percent debt. Its cost of equity is 18 percent, the cost of preferred stock is 6.5 percent, and the pre-tax cost of debt is 8.5 percen..

  Common stockholders and common stockholders equity

Can someone help me find the following: Net income available to common stockholders and Common stockholders’ equity? Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 year..

  What is its after-tax cost of debt

Micro Spinoffs, Inc., issued 20-year debt a year ago at par value with a coupon rate of 5%, paid annually. Today, the debt is selling at $1,120. If the firm’s tax bracket is 30%, what is its after-tax cost of debt? (Do not round intermediate calculat..

  Translate the financial statements of foreign subsidiary

If a U.S. company uses the current rate method to translate the financial statements of foreign subsidiary A into dollars and the currency of country A is strengthening against the dollar, would you expect the U.S. company to recognize translation ga..

  Nominal annual interest rate

You purchase a house and take out a $100,000 loan with a 30-year term at 12% nominal annual interest rate (monthly compounding). If you pay off the loan at the end of 5 years (after your 60th payment) how much will you have to pay the bank at that ti..

  What is this securitys equivalent pre-tax yield

What is this security’s equivalent pre-tax yield if the bank’s tax rate is 20 percent?

  Depreciated on a straight-line basis

McGilla Golf has decided to sell a new line of golf clubs. The length of this project is seven years. The company has spent $1704685 on research and development for the new clubs. The plant and equipment required will cost $28597768 and will be depre..

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd