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(b) A 1-year Treasury Indexed Bond with a 5% annual coupon rate, for which coupons are paid quarterly, has a face value of $1,000,000. Assuming

(b) A 1-year Treasury Indexed Bond with a 5% annual coupon rate, for which coupons are paid quarterly, has a face value of $1,000,000. Assuming the inflation rate for the next 4 quarters will be 0.5%, 0.7%, -1.50% and 0.10% per quarter, compute the coupon payments at each quarter end as well as the principal at maturity. Assume quarterly compounding. Show your working. (5 marks)

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