Judy Johnson is choosing between investing in two Treasury securities that mature in five years and have
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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. What is its price if investors required rate of return is 6.09 percent on similar bonds? Treasury notes pay interest semiannually.
b. Herron 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?
Related Book For
Cornerstones of Managerial Accounting
ISBN: 978-0324660135
3rd Edition
Authors: Mowen, Hansen, Heitger
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