. TIPS – calculate the coupon payment TIPS w/ 4% coupon rate. What will coupon payment be in year 2? Year 3? amounts for year 2: 42.02 year 3: 42.44 How did we get these amounts Inflation in year just ended. Year 1: 2% Year 2: 3% Year 3: 1%
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3. TIPS – calculate the coupon payment
TIPS w/ 4% coupon rate. What will coupon payment be in year 2? Year 3?
amounts for year 2: 42.02
year 3: 42.44
How did we get these amounts
Inflation in year just ended. Year 1: 2% Year 2: 3% Year 3: 1%
Step by step
Solved in 3 steps with 5 images
- Determinant of Interest Rates The real risk-free rate of interest is 4%. Inflation is expected to be 2% this year and 4% during each of the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury securities?5 If you buy a 3 year 5.1% coupon rate TIPS at face value and inflation is 3.4% in year 1, 6.5% in year 2, 5.9% in year 3, what are your total 3-year nominal rate of returns? A. 35.4% B. -14.0% C. 16.1% D. -0.4%Fixed Income Course - This is all one question. The following questions are about TIPS.a. What is meant by the “real rate”?b. What is meant by the “inflation-adjustedprincipal”?c. Suppose that the coupon rate for a TIPS is3%. Suppose further that an investor purchases$10,000 of par value (initial principal) of thisissue today and that the semiannual inflationrate is 1%.1. What is the dollar coupon interest thatwill be paid in cash at the end of the firstsix months?2. What is the inflation-adjusted principal atthe end of six months?
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- 3b. You read in the Wall Street Journal that 30-day treasury bills are currently yielding 8%. You are informed by a broker the following estimates of current interest rate premium: . Inflation premium = 5% • Liquidity premium = 1% Maturity risk premium = 2% Default risk premium = 2% Disregard cross product terms, i.e., if averaging is required, use the arithmetic average. On the basis of these data, what is the real risk-free rate of return.An Overview of Financial Management and the Financial Environment Differentiate between the following types of markets: physical asset vs. financial markets, spot vs. futures markets, money vs. capital markets, primary vs. secondary markets, and public vs. private markets the real risk free rate of interest is 3%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium (MRP) is zero. What is the yield on a 2 year Treasury security? What is the yield on 3 year Treasury securities? If Apple Computer decided to issue additional common stock, and someone purchased 100 shares of this stock from Merrill Lynch, the underwriter, would this transaction be a primary market transaction or a secondary market transaction? Would it make a difference if the investor purchased previously outstanding Apple stock in the dealer market?