The yield on a 10-year Treasury note is 2.74 percent and that on a 10-year TIPS note is 0.50 percent. Inflation compensation (mostly inflation expectations) is
A) 2.24 percent
B) -2.24 percent
C) 3.24 percent
D) Cannot tell from the above information

Question

Quizplus · Accepted Answer

The inflation compensation, often referred to as the break-even inflation rate, is calculated by subtracting the yield on the TIPS note from the yield on the Treasury note. Therefore, 2.74% - 0.50% = 2.24%.

The Yield on a 10-Year Treasury Note Is 2