Suppose that you buy a two-year 8% bond at its face value.
What will be your total nominal return over the two years if inflation is 3% in the first year and 5% in the second?
(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Nominal return _____ %
What will be your real return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Real return _____ %
Now suppose that the bond is a TIPS. What will be your total 2-year real and nominal returns?
(Do not round Intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Real return _____ % Nominal return _____ %