Inflation-indexed Treasury securities:
I. adjust the principal amount on an annual basis.
II. are default free.
III. offer a positive real rate of return.
IV. have a variable principal amount.
A)II and III only
B)III and IV only
C)I, II, and III only
D)I, II, and IV only
E)I, II, III, and IV

Question

Quizplus · Accepted Answer

I. adjust the principal amount on an annual basis - Correct. Inflation-indexed Treasury securities adjust their principal amount on an annual basis based on the current inflation rate.
II. are default free - Correct. These securities are issued and backed by the US government, making them default-free.
III. offer a positive real rate of return - Correct. Inflation-indexed Treasury securities offer a real rate of return on top of the inflation adjustment.
IV. have a variable principal amount - Incorrect. These securities have an adjusted principal amount, but it is not variable in the sense that it can fluctuate independently of inflation. Therefore, choice B and E are eliminated. Choice C and D are eliminated because they contain incorrect statements.

Inflation-Indexed Treasury Securities: I. Adjust the Principal Amount on an Annual Basis