question archive Assume you bought a 10-year $10,000 TIPS with 3

Assume you bought a 10-year $10,000 TIPS with 3

Subject:FinancePrice:2.86 Bought3

Assume you bought a 10-year $10,000 TIPS with 3.50% coupon rate. If the semi-annual inflation rate for the first period was 1.32%, calculate the first coupon? If the semi-annual inflation rate for the second period was 1.45%, calculate the second coupon?

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ANSWER

FIRST COUPON = 241
SECOND COUPON = 247.5

FIRST COUPON RATE= (3.5% + 1.32%) / 2 = 2.41%

FIRST COUPON AMOUNT = 10,000 x 2.41% = 241

SECOND COUPON RATE = (3.5% + 1.45%) / 2 = 2.475%

SECOND COUPON AMOUNT = 10,000 x 2.475% = 247.5

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