Suppose that you buy a TIPS (inflation-indexed) bond with a 2-year maturity and a (real) coupon of 4.4% paid annually. If you buy the bond at its face value of $1,000, and the inflation rate is 8.60% 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.

Suppose that you want to construct a 2-year maturity forward loan commencing in 3 years. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 5 Price $ 996.04 895.89 833.92 772.80 675.18 Required: a. Suppose that you buy today one 3-year maturity zero-coupon bond with face value $1,000. How many 5-year maturity zeros would you have to sell to make your initial cash flow equal to zero (specifically, what must be the total face value of those 5-year zeros)? b. What are the cash flows on this strategy in each year? c. What is the effective 2-year interest rate on the effective 3-year-ahead forward loan? d. & e. Confirm that the effective 2-year forward interest rate equals (1 + f4) ×(1 + f5)-1. You therefore can interpret the 2-year loan rate as a 2-year forward rate for the last two years. Alternatively, show that the effective 2-year forward rate equals (1 + y5) 15 + (1+y3) ³. - 1

What is the price of a bond with the following information? It is 1.5 years until expiration. The coupon rate is 7 percent and coupon payments are made once per year. The market rate of return is 5.9 percent. The bond has a face value of 2000 SEK. Tips Draw a time axis so that you do not make any mistakes with the discounting. Don't look at the cash flows as an annuity, but as two separate cash flows. There is always a coupon payment when the bond matures, how long is it then until the next coupon payment? (Answers are rounded to integers) a) 265 b) 2100 c) 1971 d) 1990 e) 2216

You are considering the purchase of a coupon bond with a face value of $1,000, which matures in 14 years, and pays 4.15% (annual) coupons. If you require a return of 3.50% on this instrument, how much would you offer to pay for it today? [Present the answer rounded to two decimal places, e.g. 1035.16]

Real and nominal interest rates: Suppose the real return on investing in amachine is 5% and the infation rate is 4%.(a) According to the Fisher equation, what should the nominal interest rate be?

Suppose you just purchased a bond (Face Value = $1,000) with 16 years to maturity that pays an annual coupon of $24.00 and is selling at par. Calculate the one-year holding period return for each of these two cases: Required: a. The yield to maturity is 3.90% one year from now. (Do not round intermediate calculations. Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) HPR b. The yield to maturity is 1.70% one year from now. (Do not round intermediate calculations. Round your answer to 2 decimal places.) HPR %