Suppose that you buy a TIPS (inflation-indexed) bond with a 2-year maturity and a coupon of 4%

Question:

Suppose that you buy a TIPS (inflation-indexed) bond with a 2-year and a of 4% paid annually. If you buy the bond at its face value, and the inflation rate is 8% in each year:
a. What will be your cash flow in year 1?
b. What will be your cash flow in year 2?
c. What will be your real rate of return over the two-year period?
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...