A ________ gives purchasers inflation protection.

Question

Quizplus · Accepted Answer

A floating rate bond gives purchasers inflation protection because the interest rate on the bond is tied to a benchmark rate (such as LIBOR) which adjusts based on changes in the overall interest rate environment. Therefore, as inflation rises, the benchmark rate rises, and the interest rate on the floating rate bond also rises, providing an inflation hedge for investors. Zero coupon bonds do not provide inflation protection because they do not pay periodic interest. Junk bonds and income bonds do not necessarily provide inflation protection - their interest rates are based on credit ratings and financial health of the issuer, rather than changes in the overall interest rate environment.

A ________ Gives Purchasers Inflation Protection