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A $1,000 TIPS (Treasury Inflation-Protected Security) is currently selling for $967 and carries a coupon interest rate of 5.09 percent. a. If you buy this

A $1,000 TIPS (Treasury Inflation-Protected Security) is currently selling for $967 and carries a coupon interest rate of 5.09 percent.

a. If you buy this bond, how much will you receive for your first interest payment, assuming no interest adjustment to principal during this time period?

b. If there's a 1.14 percent increase in inflation, what will be the new par value of the bond?

c. What is your new semiannual interest payment?

d. What would the par value be at maturity, assuming a 2.25 percent annual inflation rate and ten-year maturity period? Click on the table icon to view the FVIF table

.

Question a. - If you buy this bond, assuming no interest adjustment to principal during this time period, your first interest payment would be $_____ (Round to the nearest cent.)

Compound Sum of $1 (FVIF)

n

2.002.00%

2.252.25%

2.502.50%

2.752.75%

3.003.00%

11

1.0201.020

1.0231.023

1.0251.025

1.0281.028

1.0301.030

55

1.1041.104

1.1181.118

1.1311.131

1.1451.145

1.1591.159

1010

1.2191.219

1.2491.249

1.2801.280

1.3121.312

1.3441.344

1515

1.3461.346

1.3961.396

1.4481.448

1.5021.502

1.5581.558

2020

1.4861.486

1.5611.561

1.6391.639

1.7201.720

1.8061.806

2525

1.6411.641

1.7441.744

1.8541.854

1.9701.970

2.0942.094

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