Consider a newly issued TIPS bond with a 3-year maturity, pa…
Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 5.50%. Assume annual coupon payments. Time Inflation in year just ended Par value Coupon payment + Principal repayment = Total payment 0 $ 1,000.00 1 3.5% $ 1,035.00 $ 56.93 0 $ 56.93 2 2.5% $ 1,060.88 $ 58.35 0 $ 58.35 3 4.5% $ 1,108.62 $ 60.97 $ 1,108.62 $ 1,169.59 What is the nominal rate of return on the TIPS bond in the first year?
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