Suppose that you buy a two-year 7.5% bond at its face value.

a-1.	What will be your nominal return over the two years if inflation is 2.5% in the first year and 4.5% in the second? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Nominal return

%

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

Real return

%

b.	Suppose that the bond is a TIPS. What will be your real and nominal returns? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Real return	%
Nominal return	%