Problem $6-23$ Real Returns $($LO$3)$

Suppose that you buy a TIPS $($inflation$-$indexed$)$ bond with a $2-$year maturity and a $($real$)$ coupon of $5\mathrm{.}9\%$ paid annually. If you buy the

bond at its face value of $$1,000,$ and the inflation rate is $10\mathrm{.}85\%$ in each year.

a$.$ What will be your cash flow in year $1?$

Note: Do not round intermediate calculations. Round your answer to $2$ decimal places.

Cash flow

b$.$ What will be your cash flow in year $2?$

Note: Do not round intermediate calculations. Round your answer to $2$ decimal places.

c$.$ What will be your real rate of return over the two$-$year period?

Note: Enter your answer as a percent rounded to $1$ decimal place.

Real rate of return