Find the unknown semi-annual yield on the security

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Reference no: EM131926690

Individual C purchases a TIPS (Treasury Inflation protected security) with a face value of $1,000. This is the purchase price as well.

It has a coupon rate of 2% which is paid semi-annually. The next coupon payment will be in exactly 6 months. The TIPs has 1 year to maturity.

At the time of the purchase the price index (P) is 125 (Plo = 125). At the end of six months, PI1 130. At the end of one year, the P12 = 135.

a. Calculate the interest payment for the first 6 month period.

b. Calculate the interest payment after the second 6 month period.

c. Show the equation with numbers to find the unknown semi-annual yield on the security.

Then, indicate how you would use the unknown semi-annual yield to get the APR.

Reference no: EM131926690

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