Question: Consider a newly issued TIPS bond with a 3-year maturity, par value of $1000, and a coupon rate of 7%. Assume annual coupon. Inflation rates

Consider a newly issued TIPS bond with a 3-year maturity, par value of $1000, and a coupon rate of 7%. Assume annual coupon. Inflation rates in the first, second and third year are given as 4%, 1%, 3%. Calculate the real rate of return of TIPS in the second year.

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