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October 22, 2014

Homework Help: Finance

Posted by sherry on Friday, March 4, 2011 at 2:12pm.

A four-year TIPS bond promises a real annual coupon return of 4 percent and
its face value is $1,000. While the annual inflation rate was approximately
zero when the bond was first issued, the inflation rate suddenly accelerated to
3 percent and is expected to remain at that level for the bondís four-year term.
What will be the amount of interest paid in nominal dollars each year of the
bondís life? What will be the face (nominal) value of the bond at the end of each
year of its life?

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