Products & Their RisksQuestion 20 of 398
How does a Treasury Inflation-Protected Security (TIPS) protect an investor from inflation?
a.It increases the coupon rate as inflation rises
b.It pays a variable rate tied to short-term Treasury bills
c.It converts into common stock during inflation
d.Its principal is adjusted upward with the Consumer Price Index (CPI)
Explanation
TIPS adjust their principal value based on changes in the CPI, so as inflation rises the principal (and the dollar amount of each fixed-rate coupon payment) increases. The coupon rate itself is fixed, it is not a floating T-bill rate, and it does not convert to stock.
Practice all 398 questions free — no signup required.
Related questions on this topic
- A bond's indenture is best described as:
- An investor holds a convertible corporate bond. This feature primarily allows the investor to:
- Which U.S. Treasury security is issued at a discount, pays no periodic interest, and has a maturity of one year or less?
- U.S. Treasury securities are generally considered to have the LOWEST of which risk?
- An investor wants Treasury interest that is subject to federal income tax but EXEMPT from state and local income tax. This tax treatment applies to:
- Which of the following orders Treasury securities correctly from SHORTEST to LONGEST original maturity?
Last reviewed: · editorial process
PrepPass Editorial Team · Verified against FINRA Securities Industry Essentials (SIE) Exam · How we review