Intro Consider a newly issued TIPS bond with a 3 year maturity, par value of $1,000, and coupon rate of 4 Assume annual coupon payments and that the bond trades at par throughout its life Year Inflation Par Value Coupon 0 $1,000 00 1 5 $1,050 00 $42 00 2 2 $1,071 00 $42 84 3 3 $1,103 13 $44 13 Attempt 1 1 for 10 pts Part 1 What is the nominal rate of return on the TIPS bond in the first year 9 00 4 00 9 20 5 40

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Question: Intro Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 4%. Assume annual coupon payments and

Intro

Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 4%. Assume annual coupon payments and that the bond trades at par throughout its life.

Year	Inflation	Par Value	Coupon
0		$1,000.00
1	5%	$1,050.00	$42.00
2	2%	$1,071.00	$42.84
3	3%	$1,103.13	$44.13

Attempt 1/1 for 10 pts.

Part 1

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

9.00%

4.00%

9.20%

5.40%

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