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You just buy a TIPS (Treasury Inflation-Protected Securities) which is inflation-indexed, has a face value of $1,000, 4% coupon rate, and a maturity of 3
You just buy a TIPS (Treasury Inflation-Protected Securities) which is inflation-indexed, has a face value of $1,000, 4% coupon rate, and a maturity of 3 years.Suppose for the following three years the inflation rate is 3%, 4%, and 5%, respectively.
- What is your real cash flow in your holding period.
- What is your nominal cash flow in your holding period
- What is the real return of the such investment in TIPS, suppose the selling price is $1,000.
- What is the nominal return of the investment, suppose that the selling price of the bond is quoted at 110. (Hint: use the CF function of your financial calculator).
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