Consider a 4.5% TIPS with an issue CPI reference of 187.2. At the beginning of this year, the CPI was 199.5 and was 213.7 at the end of the year. What was the capital gain of the TIPS in dollars?
A) $32.73
B) $46.92
C) $62.49
D) $75.85

Question

Quizplus · Accepted Answer

The first step is to calculate the inflation rate, which is (ending CPI / beginning CPI) - 1:
(213.7 / 199.5) - 1 = 0.071

This means that the TIPS should have appreciated in value by 7.1%. To calculate the capital gain, we multiply the original principal by the inflation rate:
$100,000 x 0.071 = $7,100

Therefore, the capital gain of the TIPS in dollars is $7,100.