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Suppose that you buy a TIPS (inflation-indexed) bond with a 2-year maturity and a (real) coupon of 5.3% paid annually. If you buy the bond
Suppose that you buy a TIPS (inflation-indexed) bond with a 2-year maturity and a (real) coupon of 5.3% paid annually. If you buy the bond at its face value of $1,000, and the inflation rate is 9.95% 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.
(b)What will be your cash flow in year 2?
(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.
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