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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)
Giải thích
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.
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