The following questions are about TIPS.

a$.$ What is meant by the "real rate"?

b$.$ What is meant by the "inflation$-$adjusted principal"?

c$.$ Suppose that the coupon rate for a TIPS is $3\%.$ Suppose further that an investor

purchases $$10,000$ of par value $($initial principal$)$ of this issue today and that the semiannual inflation rate is $1\%.$

What is the dollar coupon interest that will be paid in cash at the end of the first six months?

What is the inflation$-$adjusted principal at the end of six months?

d$.$ Suppose that an investor buys a $5-$year TIPS and there is deflation for the entire period. What is the principal that will be paid by the Department of the Treasury at the maturity date?

e$.$ What is the purpose of the daily index ratio?

f$.$ How is interest income on TIPS treated at the federal income tax level?