The following table showing the cash flows for TIPS bonds. Time Inflation in Year Just Ended Par
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Question:
The following table showing the cash flows for TIPS bonds.
| Time | Inflation in Year Just Ended | Par Value | Coupon Payment | + | Principal Repayment | = | Total Payment | ||||||||||
| 0 | $ | 1,000.00 | |||||||||||||||
| 1 | 4.00 | % | 1,040.00 | $ | 83.20 | $ | 0 | $ | 83.20 | ||||||||
| 2 | 3.00 | 1,071.20 | 85.70 | 0 | 85.70 | ||||||||||||
| 3 | 3.00 | 1,103.34 | 88.27 | 1,103.34 | 1,191.60 | ||||||||||||
a. What is the nominal rate of return on the bond in year 2? If real rate of return is 8.00% per annum (Round your answer to 2 decimal places.)
b. What is the real rate of return in year 2? (Round your answer to 2 decimal places.)
c. What is the nominal rate of return on the bond in year 3? (Round your answer to 2 decimal places.)
d. What is the real rate of return in year 3? (Round your answer to 2 decimal places.)
Expert Answer:
To calculate the nominal rate of return on the bond we need to use the following formula Nominal Rat... View the full answer
Related Book For 
Introduction to Corporate Finance What Companies Do
ISBN: 978-1111222284
3rd edition
Authors: John Graham, Scott Smart
Posted Date:
