CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

A U.S. Treasury Inflation Protected Security has been issued with a real rate of 1.75%. In the first six months of the year inflation has equaled a 3% annualized rate. If the face value of the security is $10,000, what is the interest payment to the investor?
A. $88.81
B. $177.63
C. $87.50
Explanation: A TIPS adjusts the principal value and then applies the real rate to that value to compute periodic interest payment.

Adjusted principal value = 10,000 x (1 + 0.03/2) = $10,150
Interest payment for first six months = (0.0175 / 2) x 10,150 = $88.81

User Contributed Comments 2

User Comment
Tboyalone simple and straight forward!
sevywonder This is one of those questions you can discern an answer to just from reading. $177 is far too much, and $87.50 is too even, which stems from a failure to account for annualization
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