Question: Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 5.40%. 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 5.40%. Assume annual coupon payments. Time Inflation in Year Just Ended Par Value Coupon Payment + Principal Repayment = Total Payment 0 $ 1,000.00 1 3.4 % $ 1,034.00 $ 55.84 0 $ 55.84 2 2.4 % $ 1,058.82 $ 57.18 0 $ 57.18 3 4.4 % $ 1,105.41 $ 59.69 $ 1,105.41 $ 1,165.10 What is the nominal rate of return on the TIPS bond in the first year?

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