Problem 3-28 Nominal and real returns

Suppose that you buy a two-year 6.9% bond at its face value.

a-1. What will be your total nominal return over the two years if inflation is 1.9% in the first year and 3.9% in the second? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Nominal return %

a-2. What will be your real return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Real return %

b. Now suppose that the bond is a TIPS. What will be your total 2-year real and nominal returns? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Real return	%
Nominal return	%