Question: 1. What effect do you think an increase in real interest rates has on the price of TIPS? What about increases in realized inflation? How

1.

What effect do you think an increase in real interest rates has on the price of TIPS? What about

increases in realized inflation? How about increases in expected inflation? An increase in inflation

risk? Are those effects different for a regular T-bond?

2.

How can you combine regular (nominal) Treasuries and TIPS to build a hedge portfolio that has

exposure to inflation risk, but not to real interest risk?

3.

What do HMCs Capital Market assumptions imply for US and foreign market risk premia? What

do you think about those?

4.

What are HMC assumptions about the expected real returns on TIPS, its volatility, and its

correlation with the real returns on the other asset classes? What do they imply about the

correlation of TIPS with the Policy Portfolio excluding TIPS? What do they imply about real

interest rates and inflation risk?

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