is now 6 month after you just purchased a $1,000 face
value TIPS (Treasury Inflation
Protected Security). If the current inflation rate is 4% per year, and the security pays an annual coupon rate of 3%.
What is the coupon payment that you can expect to
The correct answer is d.
TIPS are a special type of Treasury note or bond that offers protection from inflation. When you buy an inflation-indexed security, you receive interest payments every six months and a payment of principal when the security matures. The difference with TIPS are that the coupon payments and underlying principal are automatically increased to compensate for inflation by tracking the consumer price index (CPI).
To calculate the coupon payment you must first adjust the principal for inflation. In this example:
$1,000 x [1 + (1/2)(0.04)] = $1,020 is the adjusted inflation principal.
Now we can easily calculate the coupon payment as follows:
$1,020 x [(1/2)(0.03)] = $15.30
After purchasing the TIPS 6 months ago we can expect to receive a semi-annual payment of $15.30.
Learn who benefits most when expenses are prepaid. Individuals and businesses often make payments, such as rent or insurance, ...
If you are looking specifically for an investment banking position, an MBA may be marginally preferable over the CFA. The ...
You may still pass the Chartered Financial Analysis (CFA) Level I even if you fare poorly in the ethics section, but don't ...
The correct answer is b. To initiate 12b-1 fee charges in a mutual fund, there must be a majority vote by the full board ...
Professionals who help individuals manage their finances by providing ...
Formerly known as the Association for Investment Management and ...
A professional designation given by the CFA Institute (formerly ...
A financial professional who studies various industries and companies, ...