A 3.75% TIPS has an original reference CPI of 183.9. If the current CPI is 214.7, what is the current interest payment? (Assume semi-annual interest payments and a par value of $1,000.)
A) $43.78
B) $37.50
C) $21.89
D) $18.75

Question

Quizplus · Accepted Answer

The interest payment is calculated by adjusting the par value for inflation and then applying the interest rate. The adjusted principal is $1,000 * (214.7 / 183.9) = $1,167.45. The semi-annual interest payment is then $1,167.45 * (3.75% / 2) = $21.89.

A 375% TIPS Has an Original Reference CPI of 183