Answer:
(a) $5,823.20
(b) $116,464.
(c) $5,881.43.
Explanation:
Given that,
Original principal = $116,000
Interest rate = 0.5% semi-annual
Time period = 10 years
Inflation rate = 0.4% semi-annual
(b) Inflation adjusted premium at the end of 6 months on June 30,2019:
= Original principal × Semi-annual inflation rate
= $116,000 × (1 + 0.004)
= $116,464.
Therefore, the inflation adjust principal at the beginning of six months is $116,464.
(a) First coupon payment paid on June 30,2019:
= inflation adjust principal × Interest rate
= $116,464 × 0.05
= $5,823.20
(c) Inflation adjusted premium at the end of 6 months on December 31,2019:
= Principal in June 30,2019 × Semi-annual inflation rate
= $116,464 × (1 + 0.01)
= $117,628.64.
Coupon payment on December 31,2019:
= Inflation adjusted premium × Interest rate
= $117,628.64 × 0.05
= $5,881.43.
