Calculate the inflation-adjusted principal at the beginning

Reference no: EM1394097

Consider an investor who, on January 1, 2011, purchases a TIPS bond with an original principal of $100,000, an 8% annual (or 4% semiannual) coupon rate, and 10 years to maturity.

a. If the semiannual inflation rate during the first six months is 0.3%, calculate the principal amount used to determine the first coupon payment and the first coupon payment (paid on June 30, 2011).

b. From your answer to part b, 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%. Calculate the inflation-adjusted principal at the end of the second six months (on December 31, 2011), and the coupon payment to the investor for the second six-month period is the inflation-adjusted principal on this coupon payment date.

Reference no: EM1394097

Questions Cloud

What is credited with gains in industrial productivity : Explain how typical the attitudes which Sheehy reports appear to be in work environments you have experienced.

Rationale behind estimatation : Using your own experience, estimate the probability the local weather forecast is correct. Explain the rationale behind your estimate.

Valuation and financial intermediation : What role does a financial department play in valuing business opportunities and what are some of the key financial concepts that valuation work must consider?

How store supply chain and operations support talbolts : What went wrong with Talbolts in 1997? Was it faulty strategy or execution? Who is Talbolts customer? How does store supply chain and operations support this?

Calculate the inflation-adjusted principal at the beginning : Calculate the inflation-adjusted principal at the end of the second six months (on December 31, 2011), and the coupon payment to the investor for the second six-month period is the inflation-adjusted principal

Normally distributed random variables : In other words, both variables have the same mean but different standard deviations. Draw rough sketches of the two normal curves on the same graph.

Which disney now has parks in hong kong : Now which Disney now has parks in Hong Kong also Shanghai? Suppose, you are a consultant hired to provide Disney advice on the issue of where also when to go next. Select the one you think will be the best new location for "Disneyland X." Explain ..

Exam counts for the final grade : Bob gets tests grades of 86, 92, and 60 He gets an 90 on his final exam. Find the weighted mean if each tests counts for 20%, and the final exam counts for 40% of the final grade.

How to maintain a constant workforce size : Maintain a constant workforce size however, vary hours worked to correspond to predicted demand requirements.

User Account

All Pages