Annual pay bond carrying

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A real return annual pay bond carrying a 3% coupon was priced at 100 at issue date. If inflation is 1% over the first year, then which of the following is true,

1) The investor would recieve $4000 in interest and the bond would be worth $101000.

2) The investor would recieve $3030 in interest and the bond would be worth $101000.

3) The investor would recieve $3000 in interest and the bond would be worth $101000.

4) The investor would recieve $4000 in interest and the bond would be worth $100,000.

Please show the calculation.

Reference no: EM133071351

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