ZuoTi.Pro
Question

Required information Treasury securities are issued and backed by the U.S. government and, therefore, are considered...

Required information

Treasury securities are issued and backed by the U.S. government and, therefore, are considered to be the lowest-risk securities on the market. As an investor looking for protection against inflation, you are considering the purchase of inflation-adjusted bonds known as U.S. Treasury Inflation-Protected Securities (TIPS). With these securities, the face value (which is paid at maturity) is regularly adjusted to account for inflation; however, the semiannual interest payment (called the bond dividend) remains the same.

You purchased a 10-year $10,000 TIPS bond with dividend of 4% per year payable semiannually (i.e., $200 every 6 months). Assume there is no inflation adjustment for the first 5 years, but in years 6 through 10, the bond face value increases by $1500 each year. You use an expected investment return of 14.5% per year compounded semiannually.

What will be the equivalent future worth of the total money received with dividend reinvestment included?

The future worth of all the income received would be $ ______________

business   accounting   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1
Original Principal (Par) =$10,000
Coupon Rate,10years = 4% p.a
Expected investment return = 14.5% per year compounded semiannually
Therefore, semi-annual rate = (1.145)1/2 -1 = 7%
Time Inflation Coupon Annuity Factor @7% Future Value
Years semi-annual Principal semi-annual Amount ($)
           0.5 $10,000 2% 200 3.6165           723.30
           1.0 $10,000 2% 200 3.3799           675.98
           1.5 $10,000 2% 200 3.1588           631.76
           2.0 $10,000 2% 200 2.9522           590.44
           2.5 $10,000 2% 200 2.759           551.80
           3.0 $10,000 2% 200 2.5785           515.70
           3.5 $10,000 2% 200 2.4098           481.96
           4.0 $10,000 2% 200 2.2522           450.44
           4.5 $10,000 2% 200 2.1049           420.98
           5.0 $10,000 2% 200 1.9672           393.44
           5.5 $750 $10,750 2% 215 1.8385           395.28
           6.0 $750 $11,500 2% 230 1.7182           395.19
           6.5 $750 $12,250 2% 245 1.6058           393.42
           7.0 $750 $13,000 2% 260 1.5007           390.18
           7.5 $750 $13,750 2% 275 1.4026           385.72
           8.0 $750 $14,500 2% 290 1.3108           380.13
           8.5 $750 $15,250 2% 305 1.225           373.63
           9.0 $750 $16,000 2% 320 1.1449           366.37
           9.5 $750 $16,750 2% 335 1.07           358.45
         10.0 $750 $17,500 2% 350 1           350.00
         10.0 $17,500 1     17,500.00
Total Future Value $26,724.16
0 0
Add a comment
Know the answer?
Add Answer to:
Required information Treasury securities are issued and backed by the U.S. government and, therefore, are considered...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Treasury securities are issued and backed by the U.S. government and, therefore, are considered to be...

    Treasury securities are issued and backed by the U.S. government and, therefore, are considered to be the lowest-risk securities on the market. As an investor looking for protection against inflation, you are considering the purchase of inflation-adjusted bonds known as U.S. Treasury Inflation-Protected Securities (TIPS). With these securities, the face value (which is paid at maturity) is regularly adjusted to account for inflation; however, the semiannual interest payment (called the bond dividend) remains the same. You purchased a 10-year $10,000...

  • Required information Treasury securities are issued and backed by the U.S. government and therefore, are considered...

    Required information Treasury securities are issued and backed by the U.S. government and therefore, are considered to be the lowest-risk securities on the market. As an investor looking for protection against inflation, you are considering the purchase of inflation-adjusted bonds known as U.S. Treasury Inflation Protected Securities (TIPS). With these securities, the face value (which is paid at maturity) is regularly adjusted to account for inflation; however, the semiannual interest payment (called the bond dividend) remains the same. You purchased...

  • Treasury securities are issued and backed by the U.S. government and, therefore, are considered to be...

    Treasury securities are issued and backed by the U.S. government and, therefore, are considered to be the lowest- risk securities on the market. As an investor looking for protection against inflation, you are considering the purchase of inflation-adjusted bonds known as U.S. Treasury Inflation-Protected Securities (TIPS). With these securities, the face value (which is paid at maturity) is regularly adjusted to account for inflation; however, the semiannual interest payment (called the bond dividend) remains the same. You purchased a 10-year...

  • TIPS (inflation protected securities) in 1997. The key The US Treasury started issuing provisions and features...

    TIPS (inflation protected securities) in 1997. The key The US Treasury started issuing provisions and features of these securities can be found at https://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips_rates.htm, and are reported here The coupon rate which is set at auction, remains fixed throughout the term of the security The principal amount of the security is adjusted for inflation, but the inflation- adjusted principal will not be paid until maturity Semiannual interest payments are based on the inflation-adjusted principal at the time the interest is...

  • 3. Problem on Inflation Risk The US Treasury started issuing TIPS (inflation protected securities) in 1997....

    3. Problem on Inflation Risk The US Treasury started issuing TIPS (inflation protected securities) in 1997. The key provisions and features of these securities can be found at https://www.treasurydirect.gov/indiv/research/indepth/tips/res tips rates.htm, and are reported here: . The coupon rate which is set at auction, remains fixed throughout the term of the . The principal amount of the security is adjusted for inflation, but the inflation- . Semiannual interest payments are based on the inflation-adjusted principal at the . The index...

  • 3. Problem on Inflation Risk The US Treasury started issuing TIPS (inflation protected securities) in 1997....

    3. Problem on Inflation Risk The US Treasury started issuing TIPS (inflation protected securities) in 1997. The key provisions and features of these securities can be found at https://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips_rates.htm, and are reported here The coupon rate which is set at auction, remains fixed throughout the term of the secur1 The principal amount of the security is adjusted for inflation, but the inflation adjusted principal will not be paid until maturity. Semiannual interest payments are based on the inflation-adjusted principal at...

  • U.S. Treasury has just issued securities with, $10,000 par value and a 4% coupon rate with...

    U.S. Treasury has just issued securities with, $10,000 par value and a 4% coupon rate with semiannual coupons. The maturity of the bonds is 10 years. The first coupon payment will be paid six months from today. What cash flows will you receive if you hold this bond until maturity? What is the price, i.e. present value of the bond today if the yield is 6%?

  • 15 [Problem Set 2_CH12: Innovative Government Bonds] Consider the following information of a Treasury Inflation-Protected Security...

    15 [Problem Set 2_CH12: Innovative Government Bonds] Consider the following information of a Treasury Inflation-Protected Security (TIPS). Par value=$1,000, Maturity=5 years, Annual coupon rate =5% Coupon payment occurs once every year The inflation rate for every year = 3% 2.1 How much an investor should receive for the 2nd coupon payment? (453) O(A) $50 O (B) $51.5 O (C) $53.045 (D) $113.945

  • Required information The following information applies to the questions displayed below.] At the beginning of his...

    Required information The following information applies to the questions displayed below.] At the beginning of his current tax year, David invests $13.160 in original issue U.S. Treasury bonds with a $10,000 face value that mature in exactly 25 years. David receives $620 in interest ($310 every six months) from the Treasury bonds during the current year, and the yield to maturity on the bonds is 4.2 percent. (Round your intermediate calculations to the nearest whole dollar amount.) a. How much...

  • mike wants to buy a U.S. government Treasury bond that has 12 years remaining until maturity....

    mike wants to buy a U.S. government Treasury bond that has 12 years remaining until maturity. The coupon rate is 6% per year and is paid out semiannually. The face or par value of the bond is $100,000. The current yield-to-maturity (YTM) of this bond is 5%. Calculate (1) the current market price of this bond, and (2) the new price if the required YTM rises from 5% to 6% due to a market change in bond interest rates.

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT