SIE practice questionmediumTreasury securities
Which of the following statements is TRUE about Treasury Inflation-Protected Securities (TIPS)?
- ACoupon payments are based on inflation-adjusted principal✓ Correct answer
- BThey are sold at a discount and mature at par
- CInterest is paid annually
- DPrincipal never declines
Explanation
Why A — Coupon payments are based on inflation-adjusted principal
TIPS adjust the principal for inflation, so coupon payments (which are a percentage of principal) fluctuate. They are not always sold at a discount, interest is paid semiannually, and principal can decline during deflation.
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