(Solution) - Suppose that you buy a 1 year maturity bond for 1 000 -(2025 Original AI-Free Solution)

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Suppose that you buy a 1-year maturity bond for $1,000 that will pay you back $1,000 plus a
coupon payment of $70 at the end of the year and the inflation rate is
a.
0.02
?
b.
0.04
?
c.
0.06
?
d.
0.08
?
Now suppose the TIPS bond in the previous problem is a 2-year maturity bond.
What will be the bondholder's cash flows in each year in each of the inflation scenarios?