Not quite. You get the investment cost plus the yield to maturity, which may be higher or lower than the coupon rate.Investment cost can be much higher than par after adjusting for inflation index and discount or premium. Assuming no deflation, does one get his/her investment cost plus subsequent inflation adjustments at maturity (in addition to coupon payments)?
If a TIPS was issued at a 2% yield and the current yield is 2%, then it is still trading at par. It might have been worth $1000 when issued and now be worth $1500. If so, you will receive a $15 coupon every six months, and both the coupon and the par value will grow with inflation. At maturity, you will receive $1500 adjusted for inflation.
If a TIPS was issued at a 1% yield and the current yield is 2%, then the TIPS is trading at a discount. You might be able to buy a TIPS with a par value of $1500 for $1400. If so, you will receive a $7.50 coupon every six months, and both the coupon and the par value will grow with inflation, so you will get the rest of the 2% return because your $1400 grows to $1500 plus inflation at maturity.
Statistics: Posted by grabiner — Thu Aug 15, 2024 8:06 pm — Replies 12 — Views 563