Every month the Treasury publishes indexes for calculating the current value of every TIPS ever issued. I think perhaps this is what you're looking for in terms of exact values of TIPS including the inflation component. See, for example, this month's indexes.

Tom Adams

Let's assume 1% inflation every 6 months (essentially the same as 2%/year). The principal at maturity is A*(1.01)^20=1.22A. In addition to this, every 6 months the owner gets interest payments, totaling (0.0146/2)*A*Sum(1.01)^n, where the sum is from n=1 to 20. This interest term is 0.162A, for a total return of 1.38A. Your equation gives a little more, because it assumes reinvestment of the interest payments using the same rates (which you can't easily do).

I don't think using the average inflation rate in this example causes much error. If all the inflation occurred in the first 6 months and none thereafter, the total return would be 1.40A using the above method. If the inflation instead all occurred during the last 6 months, it would be 1.37A, I think.

V = Current Value

A = Amount Invested

n = number of years

V = A * (1 + .0146 + .02) ^ n

However, the inflation rate is actually adjusted monthly with TIPS, and I don't believe using an average inflation rate like this is going to be very accurate.

Tom Adams

Assuming a 2% inflation each year & the yield at purchase is 1.46%: My one dollar after 10 year TIPS will be 1x(1.0146)x(1.0146+0.02)x(1.0146+0.02×0.02)x(1.0146+0.02+0.02+0.02)x(1.0146+0.08)x(1.146+0.1)x ( 1.0146+0.12)x(1.0146+0.14)x(1.0146+0.16)x(1.0146+0.16) =1.1475 or a 14.7% total return.

The point you make about the uncertainty of TIPS interest rates is a good one, although S & P says it's associated with a country's credit rating.

Tom Adams