Homework - Ch 6 Questions - Canberk Dayan Professor Piskula...

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Canberk Dayan Professor Piskula Chapter 6 Questions 1,2,3,5,7,11 1) Differences between T-bond, T-note and T-bill. Maturity: Bills <1 year; 1-year<Notes<10-years; Bonds > 10-year Coupon: Bills no coupon, Notes & Bonds do have coupon Pricing: Bills, priced at a discount to par; Notes & Bonds approx. issued close to par value 2) a. TIPS adjust their coupon and principal values according to inflation. The TIPS coupons are issued via auction at which coupons are issued at a fixed rate, a.k.a. real rate. b. Inflation adjusted principal is the principal that Treasury Deparment will base both the dollar amount of the coupon payment and the maturity value on. It must be calculated for a settlement date: it is defined in terms of an index ratio (CPI (3-month lag) settlement date / CPI issue date) c. TIPS @ 3% Coupon Rate, 1% semi-annual inflation rate. 1 st coupon payment - Principal Amount @ 1 st coupon payment: $10,000*1.01 = $10,100 - Coupon Amount: $10,100 * 1.5% = $151.50 Inflation-adjusted principal @ end of 6-months: 10,100 In-time of deflation:
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