In January 2010,the U.S.Treasury issued a $1000 par,five-year,inflation-indexed note with a coupon of 5%.On the date of issue,the consumer price index (CPI)was 250.By January 2015,the CPI had decreased to 200.The coupon payment that was made in January 2015 is closest to:

Question

Quizplus · Accepted Answer

First, we need to calculate the inflation adjustment factor:
Inflation adjustment factor = CPI in January 2015 / CPI at issue date = 200 / 250 = 0.8

Next, we need to calculate the coupon payment:
Coupon payment = Par value x Coupon rate x Inflation adjustment factor
= $1000 x 5% x 0.8 = $40

But, since the coupon payment is made semi-annually, we need to divide the result by 2:
Coupon payment = $40 / 2 = $20

Therefore, the answer is A) $20.