1. Suppose that the annual coupon rate of a 10-year maturity TIPS is 1%. Suppose further that an investor purchases $1,000,000 of par value (initial principal) of TIPS today and that the annual inflation rate is 2%. What is the amount of coupon payment on the second coupon payment due? Assume the same annual inflation rates and semi-annual coupon payments

2. Suppose that the current yield on 10-year maturity Treasury note is 2% and the current yield on 10-year maturity TIPS is 1%. If the expected U.S. inflation rate of this year is 2%, which security do you want to buy between TIPS and Treasury note (in other words, which one generates higher return)? Why?

3. Between TIPS and regular Treasuries, which has greater duration if other factors are constant? Why?

4. Assume that you bought 30-year Treasury bonds. The settlement date of the bonds is 9/30/2019, and the bond pays coupon interest on 8/11 and 2/11 each year. The bonds mature in 2019. The coupon rate is 3% and the total par value is $1,000,000. The current yield to maturity of the bonds is 2%. Calculate the accrued interest of the bonds. Assume that February has 28 days.

5. Suppose the bonds in #4 are corporate bonds. Calculate the accrued interest.