Final answer:
The current interest payment for the TIPS is $32.44, and the adjusted par value is $1,179.72. These values are calculated based on the inflation adjustment using the original and current CPI values, and the given interest rate.
Step-by-step explanation:
To calculate the current interest payment and par value of a Treasury Inflation-Protected Security (TIPS) with an original reference Consumer Price Index (CPI) of 177.50, a current CPI of 209.40, a 5.50 percent interest rate, and a $1,000 par value, we need to adjust the par value for inflation and calculate the interest based on the adjusted par value.
The adjusted par value is calculated as follows:
Adjusted Par Value = Original Par Value × (Current CPI / Original Reference CPI)
Adjusted Par Value = $1,000 × (209.40 / 177.50) = $1,179.72 (rounded to two decimal places)
Next, we calculate the semi-annual interest payment based on the adjusted par value:
Semi-annual Interest Payment = (Adjusted Par Value × Interest Rate) / 2
Semi-annual Interest Payment = ($1,179.72 × 0.055) / 2 = $32.44 (rounded to two decimal places)
The correct answer is D. $32.44, $1,179.72, respectively for the current interest payment and par value of the TIPS.