Suppose that you buy a two-year 8% bond at its face value. a. What will be your
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Suppose that you buy a two-year 8% bond at its face value.
a. What will be your nominal return over the two years if inflation is 3% in the first year and 5% in the second? What will be your real return?
b. Now suppose that the bond is a TIPS. What will be your real and nominal returns?
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