TIPS are treasury bonds that protect investors from inflation. Investors will earn higher rates of returns on TIPS than equivalent default risk standard bonds if ________.
A)inflation is lower than anticipated over the investment period
B)inflation is higher than anticipated over the investment period
C)the U.S. dollar increases in value against the euro
D)the spread between commercial paper and Treasury securities remains low

Question

Quizplus · Accepted Answer

TIPS offer protection against inflation, so if inflation is higher than anticipated, investors will earn higher rates of return on TIPS compared to equivalent default risk standard bonds.

TIPS Are Treasury Bonds That Protect Investors from Inflation