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Problem 6-23 Real Returns (LO3) Suppose that you buy a TIPS (inflation-indexed) bond with a 2-year maturity and a (real) coupon of 5.7% paid
Problem 6-23 Real Returns (LO3) Suppose that you buy a TIPS (inflation-indexed) bond with a 2-year maturity and a (real) coupon of 5.7% paid annually. If you buy the bond at its face value of $1,000, and the inflation rate is 10.55% 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. Cash flow 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 %
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