An Investor Buys a $10,000 Par,4

question 18

Multiple Choice

An investor buys a $10,000 par,4.25 percent annual coupon TIPS security with three years to maturity. If inflation every six months over the investor's holding period is 2.50 percent,what is the final payment the TIPS investor will receive?

• A)$10,213.00
• B)$10,869.28
• C)$11,822.25
• D)$11,843.37
• E)$12,201.11

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Definitions:

Effective Rate

A more accurate measure of interest or return that takes into account the effects of compounding over a specific period.

Contract Rate

The agreed-upon interest rate specified in a contract, often related to loans or financial agreements.

Bond Indenture

A legal contract specifying the terms and conditions under which bonds are issued, including details of interest payments and the maturity date.

Contract Rate

The agreed-upon interest rate specified in a contract, often relating to loans or bond issues.