How are TIPS adjusted for inflation?
A) The interest rate is adjusted for inflation during each period.
B) The principal is adjusted once the bond reaches maturity.
C) The principal is adjusted for inflation each period.
D) The interest rate is adjusted once the bond reaches maturity.

Question

Quizplus · Accepted Answer

TIPS (Treasury Inflation-Protected Securities) are adjusted for inflation by adjusting the principal of the bond each period based on changes in the Consumer Price Index (CPI). This ensures that the principal value of the bond keeps pace with inflation, and therefore the interest payments also reflect the changes in inflation.

How Are TIPS Adjusted for Inflation