A 3.00% TIPS has an original reference CPI of 170.6. If the current CPI is 205.9, what is the...

Question:

A 3.00% TIPS has an original reference CPI of 170.6. If the current CPI is 205.9, what is the current interest payment and par value of the TIPS? (Round your answer to 2 decimal places.)

Interest expense

Interest expense is a type of expense which is basically paid for the borrowing of money, it is also called as cost of borrowing. It is paid as per the rates specified by the lender.

Answer and Explanation:

Par value will be equal to

= current CPI/original CPI * 1000

= 205.9/170.6 * 1000

= 1206.91

Interest payment will be as follows:

= 1/2 * 3% * 1206.91

= 18.11


Learn more about this topic:

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How to Calculate Interest Expense: Formula & Example

from Financial Accounting: Help and Review

Chapter 5 / Lesson 18
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