chapter 7 question 18 Consider a 2.70 percent TIPS with an issue CPI reference o

Question

chapter 7 question 18

Consider a 2.70 percent TIPS with an issue CPI reference of 197.1. The bond is purchased at the beginning of the year (after the interest payment), when the CPI was 207.0. For the interest payment in the middle of the year, the CPI was 210.0. Now, at the end of the year, the CPI is 213.7 and the interest payment has been made.

What is the total return of the TIPS in dollars? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

What is the total return of the TIPS in percentage? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

What is the total return of the TIPS in dollars? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Explanation / Answer

solution capital gain = ending value - beginig value         33.99 [(213.7/197.1)-(207/197.1)]x1000 mid year interest payment         14.38 1/2 x .027 x 210/197.1 x 1000 Year end interest payment         14.64 1/2x.027x213.7/197.1x1000 Total dollar return         63.01 % return (63.01/(207*1000/197.1)%           6.00

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