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Consider an investor who, on January 1, purchased a TIPS with an initial principal of $100,000,2.50 percent annual coupon rate, and 5 years to maturity.

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Consider an investor who, on January 1, purchased a TIPS with an initial principal of $100,000,2.50 percent annual coupon rate, and 5 years to maturity. The semiannual inflation rates are 4.2% and 3.8%, respectively, for the two semiannual periods. a. Calculate the annual coupon payment and the total cash flows on the TIPS investment when it is liquidated at the end of the year. b. Based on your answer for part a, calculate the annual NOMINAL and REAL rates of return on the TIPS investment. c. Given that the investor 's marginal tax rate is 24%, calculate the taxes on her TIPS investment

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