Asked by
Lydia Clogger
on Dec 08, 2024
Verified
One year ago, you purchased a newly-issued TIPS bond that has a 5% coupon rate, five years to maturity, and a par value of $1,000. The average inflation rate over the year was 3.2%. What is the amount of the coupon payment you will receive, and what is the current face value of the bond?
A) $50.00, $1,000
B) $32.00, $1,032
C) $50.00, $1,032
D) $32.00, $1,050
E) $51.60, $1,032
TIPS Bond
Treasury Inflation-Protected Securities, a type of U.S. government bond designed to help investors protect against inflation by adjusting the principal value based on changes in the consumer price index.
Coupon Rate
The percentage of a bond's face value that is annually paid as interest by the bond.
Par Value
The nominal value of a bond or the stated value of stock as documented in the company's charter, frequently utilized in official paperwork.
- Acquire knowledge on the theory and mathematical process of determining coupon payments for both TIPS and traditional bonds.
- Comprehend how inflation rates influence the principal amount and coupon disbursements of TIPS.
Verified Answer
YG
Learning Objectives
- Acquire knowledge on the theory and mathematical process of determining coupon payments for both TIPS and traditional bonds.
- Comprehend how inflation rates influence the principal amount and coupon disbursements of TIPS.