Please do it by type not pics. 1.Consider a 3.05 percent TIPS with an issue CPI...

Please do it by type not pics.

1.Consider a 3.05 percent TIPS with an issue CPI reference of 184.9. At the beginning of this year, the CPI was 191.6 and was at 201.5 at the end of the year.

What was the capital gain of the TIPS in dollars?

What was the capital gain of the TIPS in percentage?

Expert Solution

Solution:

a.	Capital gain of the TIPS in dollars	$53.54

Working Notes:
	Capital gain of the TIPS in dollars = End of year value - beginning of year value
	=(CPI at End /CPI at issuance) x Face value - (CPI at Beginning /CPI at issuance) x Face value
	=(201.50/184.9) x $1,000 - (191.6/184.9) x $1,000
	=$1,089.7783 - $1,036.2358
	=$53.5425
	=$53.54


b.	Capital gain of the TIPS in percentage	5.17%

Working Notes:
	Capital gain of the TIPS in % =[ End of year value - beginning of year value]/beginning of year value
	=[(CPI at End /CPI at issuance) x Face value - (CPI at Beginning /CPI at issuance) x Face value]/(CPI at Beginning /CPI at issuance) x Face value

	=[(201.50/184.9) x $1,000 - (191.6/184.9) x $1,000]/ (191.6/184.9) x $1,000
	=($1,089.7783 - $1,036.2358)/$1,036.2358
	=0.051670189
	=5.1670189 %
	=5.17 %

Please feel free to ask if anything about above solution in comment section of the question.

jeff jeffy answered 2 years ago

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