Suppose that a 5% annual coupon CPI-linked bond is issued with a face value of $200 000 and a term of five years. Suppose that inflation, as measured by the CPI, is 5% during the first year, 7% during the second year, and 10% during the third year. Calculate the coupon payment in the second year.

1. $10 000

   1. $12 359

   2. $11 235

   3. $10 500