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### Refer to the table below and calculate both the real and nominal rat.pdf

1. 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. 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 Securit Coupon Principal Inflation in Year Just Ended Par Value PaymentRepaymentTotal Payment Time \$1,000.00 1% 1,010.00 \$40.40 1,030.20 1,040.50 41.21 41.62 \$ 40.40 41.21 1,082.12 \$1,040.50 Second Year Third Year Nominal return Real return Solution real return = nominal return - inflation rateSecond YearThird YearNominal Return=[(1030.2- 1010) + 41.21]/ 1010= 6.08%=[(1040.5-1030.2) + 41.62]/ 1030.20= 5.04%Inflation rate2%1%Real Return4.08%4.04%
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