Question

A semiannual TIPS was issued in December 2017 with a face value of $1,000 and a coupon rate of 1.2%. What coupon payment it must have paid in December 2018 if the CPI was 247.91 in December 2017 and 251.23 in June 2018?

A. 6.08 B. 6.55 C. $6.97 D. $12.16

Answer 1

Answer: $6.08

Step-by-step explanation:

To calculate the coupon payment it must have paid in December 2018 if the CPI was 247.91 in December 2017 and 251.23 in June 2018 will be:

Face value = $1000

Coupon rate = 1.2%

= Face value × Coupon rate / 2 × CPI June 2017 / CPI December 2018

= (1000 × 1.2%)/{(2 × 251.3)/247.91}

= 12/(502.6/247.91)

= 12/2.027

= $6.08