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The following table showing the cash flows for TIPS bonds. Inflation in Year Just Ended Time Coupon Payment Principal Repayment Total Payment 1 2 3

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The following table showing the cash flows for TIPS bonds. Inflation in Year Just Ended Time Coupon Payment Principal Repayment Total Payment 1 2 3 $ Par Value $1,000.00 1,022.50 1,073.63 1,111.20 2.25% 5.00 3.50 $ 46.01 48.31 50.00 0 $ 46.01 48.31 1,161.21 1,111.20 a. What is the nominal rate of return on the bond in year 2? If real rate of return is 4.50% per annum (Round your answer to 2 decimal places.) Nominal rate of return in year 2 9.73% b. What is the real rate of return in year 2? (Round your answer to 2 decimal places.) Real rate of return in year 2 4.50 % c. What is the nominal rate of return on the bond in year 3? (Round your answer to 2 decimal places.) Nominal rate of return in year 3 % d. What is the real rate of return in year 3? (Round your answer to 2 decimal places.) Real rate of return in year 3 5.00%

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