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

Class number arrangement - library management, Class Number Arrangement   ...

Class Number Arrangement   Unlike the Cities Numbers of Dewey Decimal Classification the Colon Class Numbers have not only Arabic Numerals but also capital letters of the Roman

FI560, Each student will, as part of the course requirements, submit a rese...

Each student will, as part of the course requirements, submit a research paper on an individual stock. You are allowed to select any stock that trades on the New York Stock Exchang

What is ebidta?, What Is EBIDTA?  EBITDA appears for income before atten...

What Is EBIDTA?  EBITDA appears for income before attention, taxation, devaluation, and amount. EBITDA came into large use among personal investment companies, seeking to determ

Thermo electric thermometer, how thermoelecteric thermometer is contructed ...

how thermoelecteric thermometer is contructed and how it working

Need answers in an excel spreadsheet, 1 Scott Investors, Inc., is consideri...

1 Scott Investors, Inc., is considering the purchase of a $447,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the st

Help, how to build a earthquake proof building

how to build a earthquake proof building

Avionic systems design- stability derivatives, The idea of stability deriva...

The idea of stability derivatives is to approximate the general functional relationship between any force ormoment variable and the dynamic or control variables as a Taylor series

Types of engine, TYPES OF ENGINE: The internal combustion engines for the ...

TYPES OF ENGINE: The internal combustion engines for the automotive use may be classified according to the following considerations: Engine cycle Number of strokes F

Function setxor and set function unique - set operations, Function setxor a...

Function setxor and set function unique: The function setxor receives two vectors as input arguments, and returns a vector having all the values from the two vectors which are

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