1. A 3-year TIPs bond has a real yield of 3% and a price of $100. Assume CPI for the next 3 years is 2%, 4% and 3%. Assuming annual coupon flows, what are the cash flows for the next years. What is the irr of this security?
2. The Fisher equation is expressed as follows, i = E(INF) + iR. Mathematically, does the equation allow for a negative real interest rate? In the real world, is a negative real interest rate possible? Explain your answers.