1. [12.5 POINTS] Consider a newly issued TIPS bond with a three year maturity, par value of $1000, and a coupon rate of 5%. Assume annual coupon payments. Assume that inflation is 3%, then 2% and then 4% in the next three years.

A. Calculate the par value of the bond at the end of each of the next three years.

B. Calculate the annual coupon payment at the end of year 2.

C. Calculate the nominal rate of return for the TIPS bond for the second year.

D. Calculate the real rate of return for the TIPS bond for the second year.