Suppose the Treasury issues two 5- year bonds. One is an ordinary bond that offers a fixed

Question:

Suppose the Treasury issues two 5- year bonds. One is an ordinary bond that offers a fixed nominal rate of 4 percent. The other bond is an inflation- indexed bond (or TIPS). When the TIPS bond is issued, will it have a rate of 4 per-cent, more than 4 percent, or less than 4 percent?
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...