Compute the annual interest payments and principal amount for a Treasury Inflation-Protected Security with a par value of $1.000 and a 3-percent interest rate if inflation is 4 percent in year 1. 5 percent in year 2, and 6 percent in year 3. Solution ANNUAL YEAR INFLATION PAR COUPON RATE VALUE INTEREST 1 4 1000*1.04 1040.00 1040*0.03 31.20 2 5 1040*1.05 1092.00 1092*0.03 32.76 3 6 1092*1.06 1157.52 1157.52*0.03 34.73.

1. Compute the annual interest payments and principal amount for a Treasury Inflation-Protected
Security with a par value of $1.000 and a 3-percent interest rate if inflation is 4 percent in year 1.
5 percent in year 2, and 6 percent in year 3.
Solution
ANNUAL YEAR INFLATION PAR COUPON RATE VALUE INTEREST 1 4
1000*1.04 1040.00 1040*0.03 31.20 2 5 1040*1.05 1092.00 1092*0.03 32.76 3 6 1092*1.06
1157.52 1157.52*0.03 34.73