TIPS offer investors inflation protection by increasing ________ by the inflation rate each year.

Question

Quizplus · Accepted Answer

TIPS or Treasury Inflation-Protected Securities offer inflation protection by adjusting both the par value and the coupon payment based on changes in the Consumer Price Index (CPI). This means that the investor's return increases by the inflation rate each year, protecting them against the erosion of purchasing power caused by inflation. Option A and D are incorrect as TIPS do not only increase the coupon rate or the promised yield to maturity. Option B is also incorrect as the par value of TIPS is adjusted for inflation.

TIPS Offer Investors Inflation Protection by Increasing ________ by the Inflation