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valentinak56 [21]
3 years ago
9

Randy bought a zero coupon bond and a TIPS 5 years ago for $2,500 each. Both had 10 years to maturity. The TIPS's coupon was 2%

while the zero coupon bond will be redeemed for $3,000. What should the maximum real value of his bonds be if he tries to sell them today? Select the best answer from the choices provided. $250 $750 $5,250 $5,750
Mathematics
1 answer:
UNO [17]3 years ago
5 0
So, we have that the final value of the zero coupon bond after ten years will be 3000$. The TIPS mature after 10 years, but the interest will be calculated only for 5 years. Each year of interest, the TIPS gains 2%*2500=2*25=50$. Hence the TIPS gains 50$ for each year of interest. Since the interest is not compounding, it will gain 5*50=250$ in value. Hence its total value after ten years is 2500+250=2750$. The total maximum value of the two assets combined is 3000+2750=5750$ and it is attained after 10 years. If one things that money is more important now than in 10 years, the assets could be sold at a lower price; nonetheless their max value never exceeds choice d)=5.750$
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4) Look at the fourth digit of your value. Imagine that between the two even smaller lines (0.36-0.37 and 3.52-3.53) that there is 10 smaller lines. Then, you can place your number according to your fourth digit. (So you'd place 0.365 at the 0.365 line and 3.521 at the 3.521 line)

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