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Setler [38]
3 years ago
13

Assume a $1,000 Treasury inflation-protected bond has a 2 percent coupon and a face value at issuance of $1,000. The reference C

PI is 202.34 and the current CPI is 203.18. What do you know for certain about this bond?
Business
1 answer:
Oksana_A [137]3 years ago
6 0

Answer:

The bond has a 2 percent coupon and a face value at issuance of $1000 which is the same with the Treasury inflation-protected bond. However, the reference Consumer Price Index (CPI)  which is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services has increased from 202.34 to 203.18. From this deduction, what I know for certain about this bond is that the interest payment have increased and the coupon rate is still 2 percent.

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Answer:

The correct answer is $21,522.04.

Explanation:

According to the scenario, the given data are as follows:

Present value = $10,000

Rate of interest  = 11%

Rate of interest (r) ( compounded monthly) = 11% ÷ 12 = 0.00916

time period  = 7 years

Time period ( compounded monthly) (t) = 7 × 12 = 84

So, we can calculate the future value by using following method:

FV = PV × ( 1 + r)^t

By putting the value, we get,

FV = $10,000 × ( 1 + 0.00916)^84

FV = $21,522.04

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