Judy Johnson is choosing between investing in two Treasury securities that mature in five years and have par values of $1000. One is a Treasury note paying an annual coupon of 5.06 percent. The other is a TIPS which pays 3 percent interest annually.

(c) When each bond matures, what par value will Judy receive from the Treasury note? 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?

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