I’m answering fixed income questions on Q bank:
Investor holds semi-annual TIPS of $100,000 face value, trading at par. Coupon rate = 4%. Annual inflation rate = 2.5%. What is the first coupon payment?
I did 100,000 * 1.025 * (0.04 / 2) = $2050 (principle, add inflation, times half the coupon rate)
Apparently the answer is: 100,000 * 1.0125 * (0.04 / 2) = $2025
But I don’t understand why. Typo? Or am I missing something obvious?
