TIPS Material Error

FINRA FINRA Series 65
1

I’ve noticed a discrepancy with your material on TIPs.

On the textbook material it explains the below when CPI rises.

  • annual CPI is 4%
  • Par increases by half of this (2% on top of par) due to semi annual impact of interest payment
  • Then divide the payment of interest into two as well
  • Example: 5% par bond with 4% CPI = 2% to par rise for next six month payment = 1020 par value x 5% = $51/2 =$25.50

But on the practice quiz for that session, it didn’t cut the par value mvt in half. So above example would be $1040 adj par x 5% = $52/2 =$26.00

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2

Hi @Ada_Heathcote, thank you for reaching out! This comes down to how the question is phrased.

In the quiz question, it says inflation “rises by X% by the time the first interest payment is due.” That implies X% is the actual realized increase over that period, not an annualized rate. So the par is adjusted by the full X%, then you compute the coupon on that adjusted par and divide by 2 for the semiannual payment.

Halving CPI only applies when the question explicitly says something like “annual inflation rate is X%.” FINRA/NASAA often can leave words out to be tricky, so the quiz is correct as written (just a bit vague to match the exam-style).

Please let us know if there’s anything else we can do to support you as you study.

Thank you,
Mataia