Refer to the table below and calculate both the real and nominal rates of return on the TIPS bond in the second and third years. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Principal and Interest Payments for a Treasury Inflation Protected Security Inflation in Year Time Just Ended 0 1 2 3 Nominal return Real return 18 1 1 Coupon Payment Par Value $1,000.00 1,010.00 $40.40 1,020.10 1,030.30 Second Year 40.80 41.21 % % + Principal Repayment $1,030.30 Third Year 0 0 % % = $ Total Payment 40.40 40.80 1,071.51

Refer to the table below and calculate both the real and nominal rates of return on the TIPS bond in the second and third years. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Principal and Interest Payments for a Treasury Inflation Protected Security Inflation in Year Time Just Ended 0 1 2 3 Nominal return Real return 18 1 1 Coupon Payment Par Value $1,000.00 1,010.00 $40.40 1,020.10 1,030.30 Second Year 40.80 41.21 % % + Principal Repayment $1,030.30 Third Year 0 0 % % = $ Total Payment 40.40 40.80 1,071.51

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter7: Types And Costs Of Financial Capital

Section: Chapter Questions

Problem 2EP

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Refer to the table below and calculate both the real and nominal rates of return on the TIPS bond in the second and third years. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Principal and Interest Payments for a Treasury Inflation Protected Security Time Inflation in Year Just Ended Par Value Coupon Payment + Principal Repayment = Total Payment 0 $1,000.00 1 1% 1,010.00 $ 50.50 0 $ 50.50 2 2 1,030.20 51.51 0 51.51 3 1 1,040.50 52.03 $ 1,040.50 1,092.53
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