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An investor buys a $10,000 par, 4.25 percent annual coupon TIPS security with three years to maturity. If inflation rate is 2.50 percent every six months over the investor's holding period, what is the final payment the TIPS investor will receive? (Hint: the final payment includes the principal and the last coupon payment)

Answer :

mirianmoses

Answer:

Explanation:

Adjusted face value = 10000*(1+2.5%)^(3*2)

= 11596.93

Final payment = Coupon + adjusted principal

= 11596.93*4.25%/2 +11596.93

= $ 11843.36

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