Question

Josh pays $3,000 for a Treasury Inflation-Protected Security that has an annual interest rate of three percent. By the end of the first year that he owns the bond, consumer prices have increased by 10 percent. After this adjustment, how much interest is he paid per year?

Answer 1

Answer:

$99

Explanation:

Treasury inflated protected security is defined as type of security issued by the government that is indexed for inflation. This reduces the risk to investors as a result of reduced purchasing power from inflation.

In this scenario Josh is paying $3,000 for a treasury inflation-protected security.

If the value of Josh's bond increases by 10% as a result of increase in consumer price, we will calculate the new bind price

New bond value= 1.10 * 3,000= $3,300

The interest paid by Jos is 3%

New interest= 0.03 * 3,300= $99

So Josh will now pay $99 as interest