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Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 5.80%. Assume annual coupon payments. Time Inflation
Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 5.80%. Assume annual coupon payments.
Time | Inflation in year just ended | Par value | Coupon payment | + | Principal repayment | = | Total payment | ||||||||||
0 | $ | 1,000.00 | |||||||||||||||
1 | 3.8 | % | $ | 1,038.00 | $ | 60.20 | 0 | $ | 60.20 | ||||||||
2 | 2.8 | % | $ | 1,067.06 | $ | 61.89 | 0 | $ | 61.89 | ||||||||
3 | 4.8 | % | $ | 1,118.28 | $ | 64.86 | $ | 1,118.28 | $ | 1,183.14 | |||||||
What is the nominal rate of return on the TIPS bond in the first year?
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