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You have invested in a Treasury Inflation Protected Security (TIPS) that has a par value of $1,000 and a coupon rate of 2.55%. You paid

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You have invested in a Treasury Inflation Protected Security (TIPS) that has a par value of $1,000 and a coupon rate of 2.55%. You paid par value for the security, and it matures in two years. Assume that the inflation rate for next year is 2.55% and for the year after is 2.57% Complete the following table by calculating the par values, the coupon payments, the principal repayment, the total payments, and the nominal and real rates of return for the next two years. (Round your answers to 2 decimal places.) Time Inflation in Year Just Ended Par Value $ 1000 Coupon Payment Principal Repayment Total Payment Nominal Return Real Return $ 1025.5 $ 28.82 12 2.55 % $ $ 5.43 28.82 2.55 % % 2.57 $ 1025.7 $ 26.82 $ 1840.78 2 $ 1070.03 2.55 Suppose you just purchased a bond with 11 years to maturity that pays an annual coupon of $32.00 and is selling at par. Calculate the one-year holding period return for each of these two cases: a. The yield to maturity is 5.10% one year from now. (Negative value should be indicated by a minus sign. Round your answer to 4 decimal places.) HPR b. The yield to maturity is 2.10% one year from now. (Round your answer to 4 decimal places.) HPR 9

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