Treasury Inflation Protected Securities TIPS adjusted, interest, principal, like, only

metoyoushe

H Guys

I read in others advices so called "tips for cfa exam" TIPS adjust only principal with inflation CPI-U it is true though:
TIPS pay interest semiannually at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.

principal 1000
inflation CPI-U Jan-June 1%
inflation CPI-U June-Dec 1%
Coupon 4%

(1+semi inflation rate)*principal = 1000*(1+.01) = 1 010 adjusted principal
adjusted semiannual coupon payment is:
adj principal *(1+semi annual coupon rate)= 1010*(.02) = 20.20 vs 20 no indexed
so actually coupon payment follows the CPI-U not the coupon rate.

Is this a tricky here dont you think?

dotamasta

thank you rafal, i misunderstand this before and wonder how many topics like this for me.