Final answer:
To find the par value and current interest payment of a TIPS with an original CPI of 180.9 and a current CPI of 207.2, we first calculate the inflation ratio and then use it to adjust the par value and calculate the interest payment.
Step-by-step explanation:
To calculate the par value and current interest payment of a Treasury Inflation-Protected Security (TIPS), we need to account for the adjustment in principal due to changes in the Consumer Price Index (CPI). The original reference CPI for the TIPS is given as 180.9, and the current CPI is reported to be 207.2. First, we calculate the inflation ratio, which is the current CPI divided by the original reference CPI: Inflation Ratio = Current CPI / Original Reference CPI = 207.2 / 180.9 From this, we can determine the adjusted par value of the TIPS: Adjusted Par Value = Original Par Value × Inflation Ratio Assuming the original par value is $1,000 (as TIPS are often quoted in terms of $1,000 par value), we calculate: Adjusted Par Value = $1,000 × (207.2 / 180.9) = $1,145.65 (rounded to two decimal places) Next, to find the current interest payment, we apply the interest rate on the adjusted par value. The TIPS has an interest rate of 3.625 percent: Current Interest Payment = Adjusted Par Value × Interest Rate = $1,145.65 × 0.03625 = $41.54 (semi-annual payment, rounded to two decimal places)