Question

A TIPS was issued with a par value of $1000, a coupon rate of 2.5 percent, and a reference CPI of 204.89. What is the correct calculation of the current interest payment if the CPI is now 205.44?

Answer 1

Answer:

$12.53

Explanation:

Data provided in the question

Par value = $1,000

Coupon rate = 2.5%

Reference CPI = 204.89

Now CPI = 205.44

By considering the above information, the correct calculation of the current interest payment is

= Par value × Current CPI ÷ Reference CPI × Coupon rate ÷ 2

= $1,000 × 205.44 ÷ 204.89 × 2.5% ÷ 2

= $12.53

We assume the interest is on semi annual payments