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q43

Consider a newly issued TIPS bond with a 3-year maturity, par value of $1000, and a coupon rate of 4%. Assume annual coupon. Inflation rates in the first second and third year are given as 1%, 2%, 3%. Calculate the real rate of return of TIPS in the second year. 5.0496 4% 9.5% 8.6% Bill Jones inherited 4,000 shares of stock priced at $40 per share. He does not want to sell the stock this year due to tax reasons, but he is concerned that the stock will drop in value before year-end, Bill wants to use a collar to ensure that he minimizes his risk and doesn't incur too much cost in deferring the gain, January call options with a strike of $45 are quoted at a cost of $2, and january puts with a $35 exercise price are quoted at a cost of $3. if Bill establishes the collar and the stock price winds up at $30 in January, Bills net position value including the option profit or loss and the stock is $120,000 $112.000 $135,000 5132.000