Consider an investor who, on January 1, 2017, purchases a TIPS bond with an original principal of $ 100,000, an 4 50 percent annual ( or 2 25 percent semiannual) coupon rate, and 5 years to maturity a If the semiannual inflation rate during the first six months is 1 25 percent, calculate the princi...

a The inflationadjusted principal at the end of the first six months June 30 201 ...

Consider an investor who, on January 1, 2017, purchases a TIPS bond with an original principal of

Question:

Consider an investor who, on January 1, 2017, purchases a TIPS bond with an original principal of $ 100,000, an 4.50 percent annual ( or 2.25 percent semiannual) rate, and 5 years to maturity.
a. If the semiannual inflation rate during the first six months is 1.25 percent, calculate the principal amount used to determine the first payment and the first payment (paid on June 30, 2017).
b. From your answer to part a, calculate the inflation-adjusted principal at the beginning of the second six months.
c. Suppose that the semiannual inflation rate for the second six-month period is 0.5 percent. Calculate the inflation-adjusted principal at the end of the second six months (on December 31, 2017) and the payment to the investor for the second six-month period. What is the inflation-adjusted principal on this payment date?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...