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b. From (a), what can we say about the yield on these bonds if their payments are automatically indexed to inflation? Explain. [Hint: Think real

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b. From (a), what can we say about the yield on these bonds if their payments are automatically indexed to inflation? Explain. [Hint: Think real vs. nominal] i. Yields on TIPS bonds are because they represent your rate of return in terms of a. Real ; dollars only b. Nominal ; dollars only C. Real ; purchasing power d. Nominal ; purchasing power C. Using the "2049 Feb 15" TIPS bond and the "2/15/49" Treasury bond from the bigger table (these two mature on the same day - duh!), estimate the bond market's long run expectation of inflation. [Hint: Recall the relationship between real interest rates, nominal interest rates, and the rate of inflation - see Chapter 11 in the Mankiw text for a refresher if needed. ] The bond market's long run expectation of inflation is the between the yields on these two bonds and is approximately annually. a. Sum ; 4% b. Difference ; 4% C. Sum ; 2% d. Difference ; 2%

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