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Suppose that you buy a TIPS (inflation-indexed) bond with a 2-year maturity and a (real) coupon of 4% 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 4% paid annually. If you buy the bond at its face value of $1,000, and the inflation rate is 8% in the first year and 3% in the second year. What will be your total cash flow at the end of year 2? (Hint: Total cash flow = coupon + face value in nominal terms)

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