opose that you buy a TIPS (inflation-indexed) bond with a 2-year maturity and a (real) co the bond at its face value of $1,000, and the inflation rate is 10.70% in each year. a. What will be your cash flow in year 1? Note: Do not round intermediate calculations. Round your answer to 2 decimal pla Cash flow

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Suppose that you buy a TIPS (inflation-indexed) bond with a 2-year maturity and a (real) coupon of 5.8% paid annually. If you
buy the bond at its face value of $1,000, and the inflation rate is 10.70% in each year.
a. What will be your cash flow in year 1?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Cash flow
b. What will be your cash flow in year 2?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Cash flow
c. What will be your real rate of return over the two-year period?
Note: Enter your answer as a percent rounded to 1 decimal place.
Real rate of return
%
Transcribed Image Text:Suppose that you buy a TIPS (inflation-indexed) bond with a 2-year maturity and a (real) coupon of 5.8% paid annually. If you buy the bond at its face value of $1,000, and the inflation rate is 10.70% in each year. a. What will be your cash flow in year 1? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Cash flow b. What will be your cash flow in year 2? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Cash flow c. What will be your real rate of return over the two-year period? Note: Enter your answer as a percent rounded to 1 decimal place. Real rate of return %
Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 3 decimal places.
a. What is the bond's yield to maturity if the bond is selling for $1,000?
Yield to maturity
b. What is the bond's yield to maturity if the bond is selling for $1,100?
Yield to maturity
%
Yield to maturity
%
c. What is the bond's yield to maturity if the bond is selling for $1,300?
7.140 %
Transcribed Image Text:Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 3 decimal places. a. What is the bond's yield to maturity if the bond is selling for $1,000? Yield to maturity b. What is the bond's yield to maturity if the bond is selling for $1,100? Yield to maturity % Yield to maturity % c. What is the bond's yield to maturity if the bond is selling for $1,300? 7.140 %
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