The following table showing the cash flows for TIPS bonds. Inflation in Year Just Ended Time 0 0123 2 3 2.50% 4.00 3.05 Par Value $ 1,000.00 1,025.00 1,066.00 1,098.51 Coupon Payment + Principal Repayment = $ 51.25 53.30 54.93 $0 0 1,098.51 Required: a. What is the nominal rate of return on the bond in year 2? If real rate of return is 5.00% per annum b. What is the real rate of return in year 2? c. What is the nominal rate of return on the bond in year 3? d. What is the real rate of return in year 3? Total Payment $ 51.25 53.30 1,153.44

The following table showing the cash flows for TIPS bonds. Inflation in Year Just Ended Time 0 0123 2 3 2.50% 4.00 3.05 Par Value $ 1,000.00 1,025.00 1,066.00 1,098.51 Coupon Payment + Principal Repayment = $ 51.25 53.30 54.93 $0 0 1,098.51 Required: a. What is the nominal rate of return on the bond in year 2? If real rate of return is 5.00% per annum b. What is the real rate of return in year 2? c. What is the nominal rate of return on the bond in year 3? d. What is the real rate of return in year 3? Total Payment $ 51.25 53.30 1,153.44

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter7: Types And Costs Of Financial Capital

Section: Chapter Questions

Problem 2EP

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