An indexed bond
A) will pay the same nominal interest each year.
B) reduces the interest each year that the CPI rises.
C) increases purchasing power risk for the purchaser.
D) will pay the same real interest each year.

Question

Quizplus · Accepted Answer

An indexed bond is designed to protect investors from inflation by adjusting its interest payments based on an inflation index, such as the Consumer Price Index (CPI). This means the real interest (interest adjusted for inflation) remains constant, even if nominal interest (the stated interest) changes.

An Indexed Bond