Question: Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 4.60%. Assume annual coupon payments. Inflation in

Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 4.60%. Assume annual coupon payments.

Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 4.60%. Assume annual coupon payments. Inflation in year just ended Coupon + Principal = payment repayment Total payment Time 0 1 2 2.6% 1.6% 3.6% Par value $1,000.00 $1,026.00 $1,042.42 $1,079.95 $47.20 $47.95 $49.68 0 0 $1,079.95 $ 47.20 $ 47.95 $1,129.63 3 What is the nominal rate of return on the TIPS bond in the first year? Multiple Choice 4.72% 7.32% 7.80% O O 4.20%

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