t Format Tools Add-ons Help Allchanges saved in Drive -: Normal text . Times New-. 11-, B I UA / coqB: 1. Compute the annual interest payments and principal amount for a Treasury Inflation Protected Security (TIPS) with a par value of S1,000 and a 3 percent interest rate if inflation is 4 percent in year one, 5 percent in year two, and 6 percent in year three 2. Judy Johnson is choosing between investing in two Treasury securities that mature in fi ve 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 that 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? b. How much interest will Judy receive over the five years from the Treasury note? From the TIPS? c. When each bond matures, what par value will Judy receive from the Treasury note? From the TIPS? 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? 3. Using the regular Treasury note of Problem 2: a. What is its price if investors' required rate of return is 6.0 percent on similar bonds? Treasury notes pay interest semiannually b. Erron Corporation wants to issue five-year notes but investors require a credit risk spread of 3 percentage points. What is the anticipated coupon rate on the Erron notes? 4. Assume a $1,000 face value bond has a coupon rate of 8.5 percent, pays interest semi-annually and has an eight-year life. If investors are willing to accept a 10 percent rate of return on bonds of similar quality, what is the present value or worth of this bond