SIE practice questionhardAccount Types: TIPS and Inflation Protection
A client’s account holds Treasury Inflation-Protected Securities (TIPS). What feature makes TIPS unique?
- AThey have the highest yield among Treasuries.
- BInterest is paid only at maturity.
- CPrincipal is adjusted for inflation based on changes in the CPI.✓ Correct answer
- DThey are not taxable at any level.
Explanation
Why C — Principal is adjusted for inflation based on changes in the CPI.
TIPS adjust principal with inflation (CPI changes). Interest is paid semi-annually (B), and TIPS yields are typically lower (C). They are federally taxable (D).
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