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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%. 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%. Assume annual coupon payments.
| Time | Inflation in Year just ended | Par Value | Coupon Payment + | Principal Re Payment = | Total Payment |
| 0 | $1000.00 | ||||
| 1 | 3% | $1030.00 | $51.50 | 0 | $51.50 |
| 2 | 2% | $1050.60 | $52.53 | 0 | $52.53 |
| 3 | 4% | $1092.62 | $54.63 | $1092.62 | $1,147.25 |
What is the real rate of return on the TIPS bond in the first year?
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