Inflation-adjusted principal at end of the first six months

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Suppose a portfolio manager purchases $ 1 million of par value of a Treasury inflation protected security (TIPS). The yield is 2.4%. a. Assume that the end of the first six months the CPI is 2.6% (annual rate). Compute (1) the inflation adjustment to principal at the end of the first six months, (2) the inflation-adjusted principal at the end of the first six months, and (3) the coupon payment made to the investor at the end of the first six months. b. Assume that the end of the second six months the CPI is 1.8% (annual rate). Compute (1) the inflation adjustment to principal at the end of the second six months, (2) the inflation-adjusted principal at the end of the second six months, and (3) the coupon payment made to the investor at the end of the second six months.

Reference no: EM131026144

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