A 2.5 percent TIPS has an original reference CPI of 170.4. If the current CPI is 205.7, what is the current interest payment and par value of the TIPS? (Assume semiannual interest payments and $1,000 par value.)
A) $7.16, $1,000, respectively
B) $15.09, $1,000, respectively
C) $7.16, $1,207.16, respectively
D) $15.09, $1,207.16, respectively

Question

Quizplus · Accepted Answer

The current par value of the TIPS is adjusted based on the change in the CPI. The adjustment factor is 205.7 / 170.4 = 1.20716. Thus, the adjusted par value is $1,000 * 1.20716 = $1,207.16. The semiannual interest payment is 2.5% / 2 * $1,207.16 = $15.09.

A 25 Percent TIPS Has an Original Reference CPI of 170