Suppose that you buy a TIPS (inflation-indexed) bond with a 1-year maturity and

Question

Suppose that you buy a TIPS (inflation-indexed) bond with a 1-year maturity and a coupon of 5% paid annually. Assume you buy the bond at its face value of $1,000, and the inflation rate is 6%. What will be your cash flow at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) What will be your real return? (Enter your answer as a whole percent.) What will be your nominal return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Explanation / Answer

A. cash flow- $1,082

B. Real return-4%

C. Nominal return- 6.080%

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