Question: Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 5.80%. Assume annual coupon payments. Time Inflation

Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 5.80%. Assume annual coupon payments.

Time Inflation in year just ended Par value Coupon payment + Principal repayment = Total payment
0 $ 1,000.00
1 3.8 % $ 1,038.00 $ 60.20 0 $ 60.20
2 2.8 % $ 1,067.06 $ 61.89 0 $ 61.89
3 4.8 % $ 1,118.28 $ 64.86 $ 1,118.28 $ 1,183.14

What is the nominal rate of return on the TIPS bond in the first year?

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