Question: Suppose that the coupon rate for a TIPS is 5%. Suppose further that an investor purchases $20,000 of par value (initial principal) of this issue

Suppose that the coupon rate for a TIPS is 5%. Suppose further that an investor purchases $20,000 of par value (initial principal) of this issue today and that the annual inflation rate is 3% for the first 6 months and 5% (annually) for the second 6 months of the year. Calculate the total dollar coupon interest that will be paid at the end of the first year.

Note: TIPS makes semi-annual coupon payments

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