Asked by Mandalyns Watters on May 09, 2024
Verified
TIPS are ________.
A) Treasury bonds that pay no interest and are sold at a discount
B) U.K. bonds that protect investors from default risk
C) securities that trade on the Toronto stock index
D) Treasury bonds that protect investors from inflation
TIPS
Treasury Inflation-Protected Securities (TIPS) are a form of U.S. Treasury securities designed to help investors protect against inflation, as their principal value adjusts with the inflation rate.
Treasury Bonds
Long-term government bonds issued by the U.S. Treasury, typically with a maturity of 20 to 30 years and offering periodic interest payments.
Inflation Protection
Financial strategies or instruments designed to protect investors from the erosive effect of inflation on investments and purchasing power.
- Acquire knowledge on the basic aspects of interest rates, how to calculate yields, and the role of inflation in affecting investment outcomes.
Verified Answer
RD
Ruhama DestaMay 14, 2024
Final Answer :
D
Explanation :
TIPS are Treasury Inflation-Protected Securities that protect investors from inflation by adjusting their principal value based on changes in the Consumer Price Index (CPI). They pay interest twice a year based on their fixed rate, which is applied to the adjusted principal value.
Learning Objectives
- Acquire knowledge on the basic aspects of interest rates, how to calculate yields, and the role of inflation in affecting investment outcomes.