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SIE: Economic Indicators
SIE practice questionhardTIPS (Treasury Inflation-Protected Securities)

How do Treasury Inflation-Protected Securities (TIPS) provide inflation protection?

  1. APrincipal is reduced if deflation occurs
  2. BInterest payments are fixed for the entire term
  3. CThey pay dividends linked to inflation
  4. DPrincipal is adjusted based on changes in the Consumer Price Index✓ Correct answer
Explanation

Why DPrincipal is adjusted based on changes in the Consumer Price Index

TIPS adjust principal for inflation (CPI). Interest rate is fixed, but paid on adjusted principal. No dividends are paid; principal can decline only under deflation.

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