Consider an investor who on January 1 2014 purchases a TIPS bond with an original principal of $113000 an 8 percent annual (or 4 percent
semiannual) coupon rate and 10 years to maturity.
If the semiannual inflation rate during the first six months is 0.4 percent calculate the principal amount used to determine the first coupon
payment and the first coupon payment (paid on June 30 2014).(Round your answer to 2 decimal places. (e.g.
From your answer to part a calculate the inflation-adjusted principal at the beginning of the second six months.
Suppose that the semiannual inflation rate for the second six-month period is 1.2 percent. Calculate the inflation-adjusted principal at the
end of the second six months (on December 31 2014) and the coupon payment to the investor for the second six-month period. What is the
inflation-adjusted principal on this coupon payment date? (Round your answers to 2 decimal places. (e.g.