Question Details

(Solution Download) Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 4.


 

 

 

 

 

 

 

Consider a newly issued TIPS bond with a 3-year maturity, par

 

value of $1,000, and coupon rate of 4.00%. Assume annual coupon

 

payments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time

 

Inflation in

 

Year Just Ended

 

Par Value

 

Coupon

 

Payment

+

 

Principal

 

Repayment

=

 

Total

 

Payment

  0$1,000.00
  12.0%$1,020.00$40.800$40.80
  21.0%$1,030.20$41.210$41.21
  33.0%$1,061.11$42.44$1,061.11$1,103.55

 


 

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

 

year?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.00%
4.08%
6.08%
6.00%

 


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DATE ANSWERED

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