Business, 21.02.2020 20:34, hailee6053

Suppose that you buy a TIPS (inflation-indexed) bond with a 2-year maturity and a coupon of 4% paid annually. Assume you buy the bond at its face value of $1,000, and the inflation rate is 8% in each year.

a. What will be your cash flow in year 1? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What will be your cash flow in year 2? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. What will be your real rate of return over the two-year period?

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