ZuoTi.Pro
Question
Could use some help with this, thank you!
Consider an investor who, on January 1, 2019, purchases a TIPS bond with an original principal of $113,000, an 8 percent annu
business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Original Principal =   $113,000  
Semiannual coupon rate=   4%  
      
in TIPS bond interest for next period is based on Previous period inflation adjusted principal. At start of Bond purchase, coupon is paid on original principal. thereafter on each starting date, principal is adjusted for inflation.      
      
For first 6 month, Coupon = Principal*Coupon rate Semiannual      
113000*4%      
4520      
      
At the beginning of second 6 months, principal = previous principal*(1+semiannual inflation rate during last 6 months)      
113000*(1+0.4%)      
113452      
      
Coupon paid for next 6 months = Principal adjusted*Coupon Rate      
113452*4%      
4538.08      
      
during next 6 months inflation is 1.2%      
So principal at end of 6 months =       
113452*(1+1.2%)      
114813.424      
      
a. Coupon payment   4520  
b. inflation adjusted principal   113452  
c. inflation adjusted principal for second six months=   114813.42  
Coupon payment 4538.08  

0 0
Add a comment
Know the answer?
Add Answer to:
Could use some help with this, thank you! Consider an investor who, on January 1, 2019,...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Consider an investor who, on January 1, 2019, purchases a TIPS bond with an original principal...

    Consider an investor who, on January 1, 2019, purchases a TIPS bond with an original principal of $107,000, an 8 percent annual for 4 percent semiannual) coupon rate, and 15 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, 2019) b. From your answer to part a, calculate the inflation-adjusted principal at...

  • Consider an investor who, on January 1, 2019. purchases a TIPS bond with an onginal principal of $119.000, an 10...

    Consider an investor who, on January 1, 2019. purchases a TIPS bond with an onginal principal of $119.000, an 10 percent annual (or 5 percent semlannua) coupon rate, and 10 years to maturity. a. If the semiannual inflation rate during the first six months is 0.5 percent calculate the principal amount used to determine the first coupon payment and the first coupon payment (paid on June 30. 2019). b. From your answer to part a, calculate the Inflation-adjusted principal at...

  • 2. (8 Points) Mr. Brown buys a TIPS bond on January 1, 2018. The original principal...

    2. (8 Points) Mr. Brown buys a TIPS bond on January 1, 2018. The original principal is $400,000. The annual coupon rate is 8%. The bond has 12 years to maturity. a) Suppose the semiannual inflation rate during the first six months is 1%. What is the inflation-adjusted principal at the end of the first six months (on June 30, 2018)? Show your calculations. b) What is the amount of the first coupon payment, paid on June 30, 2018? Show...

  • Suppose an investor purchases $10,000 of par value of a TIPS. The real estate (determined at...

    Suppose an investor purchases $10,000 of par value of a TIPS. The real estate (determined at the auction) is 3.8% Assume that at the end of the first six months the CPI-U is 2.4% (annual rate) and at the end of the second six months the CPI-U is 2.8% (annual rate). i) Compute the inflation-adjusted principal at the end of the first six months. ii) the coupon payment made to the investor at the end of the first six months...

  • An investor buys a $10,000 par, 4.25 percent annual coupon TIPS security with three years to...

    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)

  • B. An investor buys a $10,000 par TIPS sécurity with 4 years to maturity. The coupon...

    B. An investor buys a $10,000 par TIPS sécurity with 4 years to maturity. The coupon rate is 5% p.a. with coupon paid semiannually. The inflation every six months over the investor's holding period is 1.5%. EMAX a. What is the coupon payment the TIPS investor will receive 6 months from now? (5 points) babiyot 90 dni 29 WIROV 100W. DA 200 A no 219 WB VITO 1992 1991 no 100 boburg od Tilead LW VOITU.IO2 TUO CASOW ATUOHTIW ME...

  • 10. A dealer formation, at what price is a dealer willing to sell this T-bill quotes 90-day T-Bill with a face value of $1,000 at 4.80% bid and 4.10% ask Given this in- 11. investor purchased a T...

    10. A dealer formation, at what price is a dealer willing to sell this T-bill quotes 90-day T-Bill with a face value of $1,000 at 4.80% bid and 4.10% ask Given this in- 11. investor purchased a TIPS with face value of Si ,00,00 and a 2% perce iannually). What will the second coupon payment if the semiannual inflation during the first six months was 2.8% while the semiannual inflation over the second six months was 22%? nt annual coupon...

  • TIPS (inflation protected securities) in 1997. The key The US Treasury started issuing provisions and features...

    TIPS (inflation protected securities) in 1997. The key The US Treasury started issuing provisions and features of these securities can be found at https://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips_rates.htm, and are reported here The coupon rate which is set at auction, remains fixed throughout the term of the security The principal amount of the security is adjusted for inflation, but the inflation- adjusted principal will not be paid until maturity Semiannual interest payments are based on the inflation-adjusted principal at the time the interest is...

  • 3. Problem on Inflation Risk The US Treasury started issuing TIPS (inflation protected securities) in 1997....

    3. Problem on Inflation Risk The US Treasury started issuing TIPS (inflation protected securities) in 1997. The key provisions and features of these securities can be found at https://www.treasurydirect.gov/indiv/research/indepth/tips/res tips rates.htm, and are reported here: . The coupon rate which is set at auction, remains fixed throughout the term of the . The principal amount of the security is adjusted for inflation, but the inflation- . Semiannual interest payments are based on the inflation-adjusted principal at the . The index...

  • 3. Problem on Inflation Risk The US Treasury started issuing TIPS (inflation protected securities) in 1997....

    3. Problem on Inflation Risk The US Treasury started issuing TIPS (inflation protected securities) in 1997. The key provisions and features of these securities can be found at https://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips_rates.htm, and are reported here The coupon rate which is set at auction, remains fixed throughout the term of the secur1 The principal amount of the security is adjusted for inflation, but the inflation adjusted principal will not be paid until maturity. Semiannual interest payments are based on the inflation-adjusted principal at...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT