Zero coupon bonds do not earn interest. It is usually sold at a big discount and its redeemable value if beyond its face value will only be redeemed once it reaches maturity.
TIPS stands for Treasury Inflation Protected Securities.
TIPS:
2,500 x 2% x 5 years = 250
2,500 + 250 = 2,750
Zero coupon bond after 5 years: 2,500
Maximum real value of his bonds if he sells them today.
2,750 + 2,500 = 5,250
