The U.S. Treasury issues inflation-indexed bonds, known as Treasury Inflation Protection Securities (TIPS), as a way for investors to offset inflation risk in their portfolios, some aspects include:

Question

Quizplus · Accepted Answer

TIPS are designed to protect investors from inflation. The real rate of return is maintained because both the principal and interest payments are adjusted for inflation, ensuring the investor's purchasing power. However, the adjustments for inflation can potentially push an investor into a higher tax bracket, thereby not eliminating all inflation risk. This makes all the statements about TIPS correct.

The US Treasury Issues Inflation-Indexed Bonds, Known as Treasury Inflation Protection