SIE practice questionmediumTIPS - Inflation Protection
Which feature is unique to Treasury Inflation-Protected Securities (TIPS)?
- AThey are issued by municipalities
- BThey pay interest monthly
- CThey have maturities less than one year
- DPrincipal is adjusted based on changes in the Consumer Price Index✓ Correct answer
Explanation
Why D — Principal is adjusted based on changes in the Consumer Price Index
TIPS adjust principal for inflation (CPI), protecting against loss of purchasing power. They pay semiannual, not monthly, interest, have longer maturities, and are U.S. Treasuries, not municipal bonds.
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