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An investor buys a $10,000 1 year TIP security with a 3% coupon at par. Suppose that the CPI increases by 2% in the first

An investor buys a $10,000 1 year TIP security with a 3% coupon at par. Suppose that the CPI increases by 2% in the first six month the investor holds the bond and the CPI increases by 1.8% in the second six months.

What is the (nominal) annual rate of return, assuming that the coupon receipt received at mid-year is reinvested at 1.8%?

What is the annual inflation rate?

What is the real rate of return?

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