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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.

  1. What is your real cash flow in your holding period.

  1. What is your nominal cash flow in your holding period

  1. What is the real return of the such investment in TIPS, suppose the selling price is $1,000.

  1. 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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