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 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.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 23P
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