Calculate inflation-adjusted principal at the end of month

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Reference no: EM13333208

Consider an investor who, on January 1, 2014, purchases a TIPS bond with an original principal of $101,000, an 10 percent annual (or 5 percent semiannual) coupon rate, and 12 years to maturity.

Suppose that the semiannual inflation rate for the second six-month period is 1.1 percent. Calculate the inflation-adjusted principal at the end of the second six months (on December 31, 2014) and the coupon payment to the investor for the second six-month period. What is the inflation-adjusted principal on this coupon payment date?

Reference no: EM13333208

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