a) Suppose you buy a 1-year treasury bill at the start of year 0. This involves cash flows of $-1,000 at date 0 (you pay $1,000 today) and $1,050 at date 1, a year later (you receive $1,050 in one year). That is, the nominal interest rate you receive is 5% per year, compounded annually. Suppose also that the CPI increases from 100 at date 0 to 104 at date 1 (i.e. annual inflation was 4%). What is the real rate of return you earn by investing in this treasury? b) Suppose you buy today a 1-year (zero coupon) TIPS which costs $1,000 and promises you $1,020 plus inflation compensation linked to the CPI. Suppose today's CPI is 100 and in one year it increases to 104 (i.e. the annual inflation rate is 4%). What is the real interest rate you get on the TIPS? What is the nominal interest rate?