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Suppose the rate of inflation (CPI) is 0 right now, and the Turkish Treasury issues a new TIPS that has a face (nominal) value of
Suppose the rate of inflation (CPI) is 0 right now, and the Turkish Treasury issues a new TIPS that has a face (nominal) value of TL1,000 and promises a real annual coupon rate of 10% for 5 years (until maturity). Suppose that the annual inflation is expected to be 12% and remains at that level for 5 years period.
a) Calculate inflation adjusted nominal coupon payments of the TIPS bond during maturity.
b) Calculate the adjusted real value of a conventional bond after inflation assuming the same maturity, and expected annual rates of inflation.
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