The following questions are about TIPS. a. What is meant by the “real rate”? b. What is meant by the “inflation-adjusted principal”? c. Suppose that the coupon rate for a TIPS is 3%. Suppose further that an investor purchases $10,000 of par value (initial principal) of this issue today and that the semiannual inflation rate is 1%.
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Fixed Income Course - This is all one question.
The following questions are about TIPS.
a. What is meant by the “real rate”?
b. What is meant by the “inflation-adjusted
principal”?
c. Suppose that the coupon rate for a TIPS is
3%. Suppose further that an investor purchases
$10,000 of par value (initial principal) of this
issue today and that the semiannual inflation
rate is 1%.
1. What is the dollar coupon interest that
will be paid in cash at the end of the first
six months?
2. What is the inflation-adjusted principal at
the end of six months?
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