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Suppose that the coupon rate for a TIPS is 2.5% Suppose further that an investor purchases $10,000 of par value initial principal) of this issue

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Suppose that the coupon rate for a "TIPS" is 2.5% Suppose further that an investor purchases $10,000 of par value initial principal) of this issue today and that the semi-annual inflation rate is 1.5%. What is the dollar coupon interest that will be paid in cash at the end of the sixth and twelve month respectively? What is the inflation-adjusted principal at the end of the sixth and twelve month respectively? (Assume coupon payments are paid semi-annually.) If the semi-annual inflation rate doubles to 3.0%, what are the dollar coupon interest and inflation- adjusted principals at the end of the sixth and twelve month respectively? (Assume coupon payments are paid semi-annually.) When will "TIPS" outperform a comparable nominal bond? Why

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