Consider an investor who, on January 1, 2014 purchases a TIPS bond with an original principal of $100,000, an annual 8 percent annual coupon rate, and 10 years to maturity.

If the semiannual inflation rate during the first six months is 0.3 percent, calculate the principal amount used to determine the first coupons payment. From you answer to part a, calculate the inflation adjusted principal at the beginning of the second six months.

Suppose that the semiannual inflation rate for the second six-months is 1 percent. Calculate the inflation adjusted principal at the end of the second six-month period, and the coupon payment to the investor.