Suppose that you buy a TIPS (inflation - indexed) bond with a 2-year maturity and a (real) coupon of 4.1% paid annually. If you buy the bond at its face value of $ 1,000, and the inflation rate is 8.15% in each year. What will be your cash flow in year 1? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. What will be your cash flow in year 2? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. 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.
Suppose that you buy a TIPS (inflation - indexed) bond with a 2-year maturity and a (real) coupon of 4.1% paid annually. If you buy the bond at its face value of $ 1,000, and the inflation rate is 8.15% in each year. What will be your cash flow in year 1? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. What will be your cash flow in year 2? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. 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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![Suppose that you buy a TIPS (inflation - indexed) bond
with a 2-year maturity and a (real) coupon of 4.1% paid
annually. If you buy the bond at its face value of $
1,000, and the inflation rate is 8.15% in each year. What
will be your cash flow in year 1? Note: Do not round
intermediate calculations. Round your answer to 2
decimal places. What will be your cash flow in year 2?
Note: Do not round intermediate calculations. Round
your answer to 2 decimal places. 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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fae7efd4a-a305-4be8-b2f8-657b3bfa7404%2Ff63c993b-e19a-4c31-a349-a35c6ad94e03%2Fln9ewe4_processed.png&w=3840&q=75)
Transcribed Image Text:Suppose that you buy a TIPS (inflation - indexed) bond
with a 2-year maturity and a (real) coupon of 4.1% paid
annually. If you buy the bond at its face value of $
1,000, and the inflation rate is 8.15% in each year. What
will be your cash flow in year 1? Note: Do not round
intermediate calculations. Round your answer to 2
decimal places. What will be your cash flow in year 2?
Note: Do not round intermediate calculations. Round
your answer to 2 decimal places. 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.
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