1. Consider a newly issued TIPS security with par value $10,000 and 2.6% coupon rate (paid semiannually).

a). If inflation over the next 6 months turns out to be 3.0% (on annualized basis), what is the dollar coupon interest that will be paid in 6 months?

b). If inflation turns out to be 2.0% (annualized) over the following 6 month period, what is the dollar coupon interest that will be paid in 1 year?