Consider a 3.75 percent TIPS with an issue CPI reference of 183.50. At the beginning of this year, the CPI was 190.60 and was at 199.40 at the end of the year. What was the capital gain of the TIPS in percentage terms? Assume semi-annual interest payments and $1,000 par value. (Do not round the intermediate steps. Round your final answer to 2 decimal places.)
gain = end of year value – beginning of year value
= 199.40/183.50 × $1,000 − 190.6/183.5 × $1,000 = $1,086.65 − $1,038.69 = $47.96
As a percentage, the gain was = $47.96 ÷ $1,038.69 = 4.62%
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