What is the inflation-adjusted principal at the end of year

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Reference no: EM13849149

The annual coupon rate for TIPS is 6%. Suppose that an investor purchases $1,000 of par value (initial principal) of this issue today and that the annual inflation rate is 3%.

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

2. What is the inflation-adjusted principal at the end of the year?

3. An investor buys five-year TIPS and there is deflation for the entire five-year holding period. What is the principal that will be paid by the Department of Treasury at the maturity date?

Reference no: EM13849149

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