Asked by
Breanna Rivera
on Dec 08, 2024
Verified
One year ago, you purchased a newly-issued TIPS bond that has a 4% coupon rate, five years to maturity, and a par value of $1,000. The average inflation rate over the year was 3.6%. What is the amount of the coupon payment you will receive, and what is the current face value of the bond?
A) $40.00, $1,000
B) $41.44, $1,036
C) $40.00, $1,036
D) $36.00, $1,040
E) $76.00, $1,000
TIPS Bond
Treasury Inflation-Protected Securities (TIPS) are U.S. government bonds that are indexed to inflation in order to protect investors from the negative effects of rising prices.
Coupon Rate
The annual interest rate paid by a bond issuer to its bondholders, expressed as a percentage of the bond's face value.
Inflation Rate
The speed at which prices for products and services ascend, resulting in a decline in how much can be bought.
- Comprehend the fundamental principles and computations associated with coupon disbursements for Treasury Inflation-Protected Securities (TIPS) and standard bonds.
- Understand the effect of inflation rates on the nominal value and interest payments of Treasury Inflation-Protected Securities.
Verified Answer
DM
Learning Objectives
- Comprehend the fundamental principles and computations associated with coupon disbursements for Treasury Inflation-Protected Securities (TIPS) and standard bonds.
- Understand the effect of inflation rates on the nominal value and interest payments of Treasury Inflation-Protected Securities.