A. If the coupon rate of an inflation protection bond (TIPS) is 1.75% and it is sold at par or $1,000. What is the annual real return on this bond for a buy and hold investor. Assume inflation is +2%.
B. If the coupon rate of an inflation protection bond (TIPS) is 1.75% and it is sold at par or $1,000. What is the annual real return on this bond for a buy and hold investor. Assume inflation is -2% (that is, minus 2%).
C. This bond should provide the same real return during inflationary and deflationary periods. YES, or NO, circle one and explain below.