This question was already asked and answered, but the initial part of the questi

Question

This question was already asked and answered, but the initial part of the question and part A need to be answered in table format...

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 five years, what will be Judy%u2019s annual interest income from TIPS bond? From Treasury note?

Year - par value - Treasury Note Annual coupon intrst - inflation - par value - TIPS Annual Coupon interest

1

2

3

4

5 - total $ - - total $ - total $

Explanation / Answer

a.Judy%u2019s annual interest income from TIPS bond =3%*$1,000 = $30

Judy%u2019s annual interest income from Treasury bond =5.06%*$1,000 = $50.6

b. Interest Judy receive over the five years from the Treasury note = $50.6*5 = $253.0

Interest Judy receive over the five years from the TIPS bond = $30*5 = $150.0

c. Par value Judy receive from the Treasury note = $1,000

Par value Judy receive from the TIPS bond = $1,000

d. Judy%u2019s total income from the Treasury note = $1,253

Judy%u2019s total income from TIPS bond = $1,150

Yes, she should use this total as a way of deciding which bond to purchase

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