Consider an investor who, on January 1, 2022, purchases a TIPS bond with an original principal of
Question:
Consider an investor who, on January 1, 2022, purchases a TIPS bond with an original principal of $100,000, an 8 percent annual (or 4 percent semiannual) coupon rate, and 10 years to maturity. (LG 6-2)
a. If the semiannual inflation rate during the first six months is 0.3 percent, calculate the principal amount used to determine the first coupon payment and the first coupon payment (paid on June 30, 2022).
b. From your answer to part (a), calculate the inflationadjusted principal at the beginning of the second six months.
c. Suppose that the semiannual inflation rate for the second six-month period is 1 percent. Calculate the inflationadjusted principal at the end of the second six months
(on December 31, 2022) and the coupon payment to the investor for the second six-month period. What is the inflation-adjusted principal on this coupon payment date?
AppendixLO1
Step by Step Answer:
ISE Financial Markets And Institutions
ISBN: 9781265561437
8th International Edition
Authors: Anthony Saunders, Marcia Cornett, Otgo Erhemjamts