You purchase a Treasury inflation-protected note with an original principal amount of $1,000,000 and a 2.8 percent annual coupon (paid semiannually). What will the first coupon payment be if the semiannual inflation over the first six months is 1.2%?

Question

Quizplus · Accepted Answer

The principal is adjusted for inflation: $1,000,000 * 1.012 = $1,012,000. The semiannual coupon rate is 2.8% / 2 = 1.4%. The first coupon payment is 1.4% of the adjusted principal: $1,012,000 * 0.014 = $14,168.

You Purchase a Treasury Inflation-Protected Note with an Original Principal