The TIPS bond has an annual coupon rate of 4.5%. The table below shows the history of inflation rates for the first three years of the bond's life.
| Time |
Inflation for year just ended |
par value |
| 0 |
|
$1000 |
| 1 |
3% |
|
| 2 |
4% |
|
| 3 |
3% |
|
|
|
|
a. What was the nominal return in year 2?
b. What was the real return in year 2?
c. What was the nominal return in year 3?
d. What was the real return in year 3?