1. If a newly issued TIPS with a par amount of $1000 experienced 2% annual inflation over the next 2 years (4 six month periods), what would the principal amount be at the end of 2 years? Use 1 decimal point in your answer.
2. You just bought Put options for 100 shares of YUM for $1.47/share. The exercise price of the puts is $70/share. The options expire on April 15, 2016. The current price of YUM stock is $75.125/share. Are your puts in-the-money, at-the-money or out-of-the-money, and by how much? Draw the graph of the profit/loss of your put position at expiry. Label your axes.