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.