Reconsider a 2

Reconsider a 2.75 percent TIPS that was issued with CPI reference of 191.7. The bond is purchased at the beginning of the year (after the interest payment) , when the CPI was 197.5. For the interest in the middle of the year, the CPI was 205.2. Now, at the end of the year, the CPI is 204.4 and the interest payment has been made. What is the total return of the TIPS in percentage terms for the year? (Assume semiannual interest payments and $1,000 par value.)

A) 2.75 percent
B) 5.60 percent
C) 6.26 percent
D) 6.80 percent

Correct Answer:

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