Suppose that you just purchased a $1,000 Treasury Inflation-Indexed Bond which carried an original interest rate of 3.375%.The consumer price index just increased by 5% increasing the par value of the bond to $1,050.What is your interest payment considering this change?

Question

Quizplus · Accepted Answer

The interest payment on a Treasury Inflation-Indexed Bond is calculated based on the inflation-adjusted par value of the bond. The formula is: Interest payment = (Inflation-adjusted par value x Interest rate) / 2.

In this case, the inflation-adjusted par value is $1,050 (original value of $1,000 increased by 5% inflation). The interest rate is 3.375%. Plugging these values into the formula, we get:

Interest payment = ($1,050 x 3.375%) / 2
= $35.44

So the correct answer is choice C.

Suppose That You Just Purchased a $1,000 Treasury Inflation-Indexed Bond