A 10-year bond has a par value of $1,000 and a coupon rate of 5 percent

Finance Nov 13, 2020

A 10-year bond has a par value of $1,000 and a coupon rate of 5 percent. During the first six months after the bond was issued, the inflation rate was 1.3 percent. By how

much does the principal of the bond

increase? What is the coupon payment

after six months?

Expert Solution

Assuming it is a TIPS or inflation indexed bond

Principal after six months=1000*(1+1.3%)=1013.00

Increase=1013.00-1000=13.00

Coupon payment after six months=1013*5%/2=25.33

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