Problem:
Consider a 5.40 percent TIPS with an issue CPI reference of 208.4. The bond is purchasedat the beginning of the year (after the interest payment). When the CPI was 216.3 For the interest payment in the middle of the year, the CPI was 217.9. Now, at the end of the year the CPI is 222.4 and the interest payment has been made.
Required:
Question 1: What is the total return of the TIPS in dollars?
Question 2: What is the total return of the TIPS in percentage?
Note: Please show how you came up with the solution.