2. Judy Johnson is choosing between investing in two treasury securities that ma

Question

2. Judy Johnson is choosing between investing in two treasury securities that mature in
five years and have par value of $1,000. One treasury note paying an annual coupon of
5.06 percent. The other tips which pays 3 percent interest annually.

a. if inflation remains constant at 2 percent annually over the next five years
what will judy annual interest income from the tips bond? From the treasury note?
b. how much interest will Judy receive over the five years from the treasury note? The Tpis?
c. when each bond matures what par value will Judy receive from the treasury note? The Tips?
d. after five years what is Judy total income(interest par) from each bond? Should she use this total
as a way of deciding which bond to purchase?



10. A US firm wants to raise $15 million by selling $1 million shares at net price of $15. We
know that some say the firms leave money on the table because of the phenomenon of
under pricing.
a. using the average amount of under pricing in the US IPOs how many fewer shares could
it sell to raise these funds if the firm receive a net price per share equal to the value of the shares
at the end of of the first days trading.
b. how many less shares could it sell if the IPO was occurring in Germany?
c. how many less shares could it sell if the IPO was occurring in Korea?
d. how many less shares could it sell if thr IPO was occurring in Canada?

Explanation / Answer

A

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