Calculate the inflation-adjusted principal

Assignment Help Financial Management

Reference no: EM131996024

Consider an investor who, on January 1, 2016, purchases a TIPS bond with an original principal of $100,000, an 8 percent annual (or 4 percent semiannual) coupon rate, and 10 years to maturity.

a. If the semiannual inflation rate during the first six months is 0.3 percent, calculate the principal amount used to determine the first coupon payment and the first coupon payment (paid on June 30, 2016).

b. From your answer to part a, calculate the inflation-adjusted principal at the beginning of the second six months.

c. Suppose that the semiannual inflation rate for the second six-month period is 1 percent.

Calculate the inflation-adjusted principal at the end of the second six months (on December 31, 2016) 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: EM131996024

Questions Cloud

Why do organization have information deficiency problem : Why do organization have information deficiency problem? Suggest ways on how to overcome information deficiency problem.

What is the symbol of a period element : What is the symbol of a period 3 element that forms a +1 cation? Write the symbol of an ion from group 7A with 10 electrons.

What is the firm value of without leverage : What is the firm's value of without leverage? What is the firm' s value with the $ 35 million of debt?

Compounds or ions and use formal charges : Draw resonance structures for each the following compounds or ions and use formal charges to indicate which resonance structure will make the largest

Calculate the inflation-adjusted principal : Calculate the inflation-adjusted principal at the beginning of the second six months.

Calculations for the current loan and the new loan : What are the calculations for the current loan and the new loan? Would you refinance and why?

Find the distributions of revenue-costs and profit : Tanner Park is a small amusement park that provides a variety of rides and outdoor activities for children and teens.

Review problem on human computer interaction : Manufactures of smartphones design products to be interactive with consumers. To remain competitive, designers are focused on getting a new product to market.

Reasons for reversing the decisions of the lower court : What theory of liability did Justice Posner use in finding the defendant liable? What are the judge’s reasons for reversing the decisions of the lower court?

User Account

All Pages