Consider an investor who purchases a Treasury inflation-indexed note with an original principal amount of $100,000, a 6.500 percent annual coupon rate (coupon is paid semiannually), and 10 years to maturity. The semiannual inflation rate during the 6 months ending 3 months before the first coupon payment (the 3-month lag is necessary to allow for the release of the official CPI figures) is 0.90 percent. Over the next 6-month period inflation is 1.36 percent. Calculate the adjusted principal amount for the second coupon payment.

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Step 1 Calculate the adjusted principal amount after the first period During the first period the ... View the full answer