Question

Suppose you purchase a $1,000 TIPS on January 1, 2016. The bond carries a fixed coupon of 1 percent. Over the first two years, semiannual inflation is 2 percent, 4 percent, 2 percent, and 3 percent, respectively. For each six-month period, calculate the accrued principal and coupon payment. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

	Jun-16	Dec-16	Jun-17	Dec-17
Inflation	2%	4%	2%	3%
Principal	1020	1060.800	1082.016	1114.47648
Coupon Payment	5.10	5.30	5.41	5.57

Principal Increases with the semi annual Inflation rate every 6 months.

Coupon payment shall be 50% of coupon rate(because being paid semi anually) * New inflation adjusted principal amount(Bond Value).

Attaching here formula along with row and column mark to understand.

	C	D	E	F	G
		42522	42705	42887	43070
19	Inflation	0.02	0.04	0.02	0.03
20	Principal	=1000*(1+D19)	=D20*(1+E19)	=E20*(1+F19)	=F20*(1+G19)
21	Coupon Payment	=0.5%*D20	=0.5%*E20	=0.5%*F20	=0.5%*G20