Suppose you purchase a 1000 TIPS on January 1 2013 The bond

Suppose you purchase a $1,000 TIPS on January 1, 2013. The bond carries a fixed coupon of 2 percent. Over the first two years, semiannual inflation is 1 percent, 2 percent, 2 percent, and 3 percent, respectively. For each six-month period, calculate the accrued principal and coupon payment.

Accrued Principal Coupon Payment

First 6 months $ $

Second 6 months $ $

Third 6 months $ $

Fourth 6 months $ $

Solution

inflation accrued principal coupon payment 1 1000 1% 1010 20 2 1010 2% 1030.2 20.2 3 1030.2 2% 1050.804 20.604 4 1050.804 3% 1082.328 21.01608