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Basic Question 0 of 19
Suppose a portfolio manager purchases $2 million of par value of a Treasury inflation protection security. The real rate is 2.6%. Assume that at the end of the first six months the CPI-U is 3.2% (annual rate). The inflation adjustment to principal at the end of the first six months is ______.
B. $26,000
C. $32,000
A. $64,000
B. $26,000
C. $32,000
User Contributed Comments 6
| User | Comment |
|---|---|
| o123 | remember semi annual!! |
| JKiro | "inflation adjusted principal" vs. inflation- adjustment-to-principal |
| magicchip | D'OH. Semi annual. |
| Emily1119 | Why we use 3.2% but not 1.6%? |
| 2014 | we did not used 3.2 in calculation. We used half of it since it is semi annual. 3.2 is annual inflation rate given in question |
| CJPerugini | Changes in the principle amount for TIPS are based solely on changes to the CPI. Because TIPS make coupon payments every 6 months, we need to adjust the annual CPI to its 6 month CPI. |
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Learning Outcome Statements
describe funding choices by sovereign and non-sovereign governments, quasi-government entities, and supranational agencies
CFA® 2024 Level I Curriculum, Volume 4, Module 5.