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Consider a newly issued TIPS bond with a three year maturity, par value of $1000, and a coupon rate of 6%. Assume annual coupon payments.
- Consider a newly issued TIPS bond with a three year maturity, par value of $1000, and a coupon rate of 6%. Assume annual coupon payments.
Time
Inflation in year just ended
Par Value
Coupon Payments
Principal Payment
Total Payment
0
$1000.00
1
2.5%
2
3.0%
3
3.5%
- Fill in the shaded cells with amounts in the above table.
- What is the nominal rate of return on the TIPS bond in the first year?
- What is the real rate of return on the TIPS bond in the first year?
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