TIPS offer investors inflation protection by [{Blank}] by the inflation rate each year. A. increasing only the coupon rate B. increasing only the par value C. increasing both the par value and the coupon payment D. increasing the promised yield to maturit

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01.08.2022 - 17:01

TIPS offer investors inflation protection by [{Blank}] by the inflation rate each year. A. increasing only the coupon rate B. increasing only the par value C. increasing both the par value and the coupon payment D. increasing the promised yield to maturit

Question:

TIPS offer investors inflation protection by _____ by the inflation rate each year.

A. increasing only the coupon rate

B. increasing only the par value

C. increasing both the par value and the coupon payment

D. increasing the promised yield to maturity

Answers (1)

Leota April 14, 2023 в 09:31

C. increasing both the par value and the coupon payment TIPS (Treasury Inflation-Protected Securities) are designed to protect investors from inflation. The interest payments on TIPS are adjusted based on changes in the Consumer Price Index (CPI), which is a measure of inflation. As the CPI increases, the principal value of TIPS is adjusted upward, which results in larger interest payments. This means that both the par value and the coupon payment of TIPS will increase as the inflation rate goes up. Therefore, option C is correct. Options A, B, and D do not accurately describe how TIPS provide investors with inflation protection.

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