Question

Consider an investor who, on January 1, 2019, purchases a TIPS bond with an original principal...

Consider an investor who, on January 1, 2019, purchases a TIPS bond with an original principal of $111,000, an 10 percent annual (or 5 percent semiannual) coupon rate, and 15 years to maturity.

a. If the semiannual inflation rate during the first six months is 0.5 percent, calculate the principal amount used to determine the first coupon payment and the first coupon payment (paid on June 30, 2019).
b. From your answer to part a, calculate the inflation-adjusted principal at the beginning of the second six months.
c. Suppose that the semiannual inflation rate for the second six-month period is 1.3 percent. Calculate the inflation-adjusted principal at the end of the second six months (on December 31, 2019) and the coupon payment to the investor for the second six-month period.

(For all requirements, round your answers to 2 decimal places. (e.g., 32.16))

a. Coupon payment
b. Inflation-adjusted principal
c. Inflation-adjusted principal at the end of the second six months
Coupon payment

Homework Answers

Answer #1
Original Principal Amount $ 1,11,000.00
Year of maturity 15
Annual coupon rate 10%
Semi annual coupon rate 5%
First six month semiannual inflation rate 0.50%
a) June 30th
The Inflation adjusted principal=(111000*1.005) $ 1,11,555.00
Coupon Payment=(111555*5%) $       5,577.75
b) The Inflation adjusted principal at the beginning of second month is $ 1,11,555.00
C) Second six month semiannual inflation rate 1.30%
Inflation adjusted principal=(111555*(1.013) $ 1,13,005.22
Semi annual coupon payment=(113005*5%) $       5,650.26
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
On January 1, 2020, the Hardin Company budget committee has reached agreement on the following data...
On January 1, 2020, the Hardin Company budget committee has reached agreement on the following data for the 6 months ending June 30, 2020. Sales units: First quarter 5,400; second quarter 7,000; third quarter 7,600. Ending raw materials inventory: 40% of the next quarter’s production requirements. Ending finished goods inventory: 25% of the next quarter’s expected sales units. Third-quarter production: 7,840 units. The ending raw materials and finished goods inventories at December 31, 2019, follow the same percentage relationships to...
On January 1, 2020, the Hardin Company budget committee has reached agreement on the following data...
On January 1, 2020, the Hardin Company budget committee has reached agreement on the following data for the 6 months ending June 30, 2020. Sales units: First quarter 5,000; second quarter 6,900; third quarter 7,300. Ending raw materials inventory: 40% of the next quarter’s production requirements. Ending finished goods inventory: 25% of the next quarter’s expected sales units. Third-quarter production: 7,360 units. The ending raw materials and finished goods inventories at December 31, 2019, follow the same percentage relationships to...
To prepare a master budget for April, May, and June of 2019, management gathers the following...
To prepare a master budget for April, May, and June of 2019, management gathers the following information. ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2019 Assets Cash $ 54,000 Accounts receivable 354,375 Raw materials inventory 100,495 Finished goods inventory 333,000 Total current assets 841,870 Equipment 628,000 Accumulated depreciation (164,000 ) Equipment, net 464,000 Total assets $ 1,305,870 Liabilities and Equity Accounts payable $ 212,195 Short-term notes payable 26,000 Total current liabilities 238,195 Long-term note payable 514,000 Total liabilities 752,195 Common...
Dec. 1 Issued to John and Patty Driver 27,000 shares of capital stock in exchange for...
Dec. 1 Issued to John and Patty Driver 27,000 shares of capital stock in exchange for a total of $270,000 cash. Dec. 1 Purchased for $201,600 all of the equipment formerly owned by Rent-It. Paid $138,000 cash and issued a 1-year note payable for $63,600. The note, plus all 12 months of accrued interest, are due November 30, Year 2. Dec. 1 Paid $9,300 to Shapiro Realty as three months’ advance rent on the rental yard and office formerly occupied...
Business Description Daisy, a friend who is an excellent baker, has decided to open a cupcake...
Business Description Daisy, a friend who is an excellent baker, has decided to open a cupcake store to sell gourmet cupcakes. Daisy has asked you if you will be willing to loan the company $50,000 at an interest rate of 4% that will be paid back over 5 years. Using the skills you have developed in ACCT 551 Accounting for Managers, you will analyze the business to determine if you will loan Daisy the money. The business is scheduled to...
The corporation performs adjusting entries monthly. Closing entries are performed annually on December 31. During December,...
The corporation performs adjusting entries monthly. Closing entries are performed annually on December 31. During December, the corporation entered into the following transactions. Dec. 1 Issued to John and Patty Driver 27,000 shares of capital stock in exchange for a total of $270,000 cash. Dec. 1 Purchased for $201,600 all of the equipment formerly owned by Rent-It. Paid $138,000 cash and issued a 1-year note payable for $63,600. The note, plus all 12 months of accrued interest, are due November...
1.An obligation of a business that represents the claims of others against the assets of he...
1.An obligation of a business that represents the claims of others against the assets of he business is called a(n) * A.asset B.liability C.expense D.revenue E.equity 2.The general journal provides a place for recording * A.the amount of each debit and credit B.an explanation of the transaction C.the transaction date D.the names of the accounts involved E.All of these 3.An exchange of economic consideration between two parties that causes a change in assets, liabilities or equity is called * A.prepaid...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT