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Issuing inflation-adjusted securities reduces the interest costs of the US Treasury department.

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True

False

True. The Treasury department saves on interest costs in this way.

If you earn interest on an inflation-adjusted bond, _______.

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The income is tax-deferred

The income is taxed as ordinary income by the IRS

You only have to pay tax on coupon interest, not principal interest

The income is taxed as ordinary income by the IRS. If you earn interest on an inflation-adjusted bond, the income is taxed as ordinary income by the IRS.

Treasury inflation-adjusted securities come in maturities of five or 10 years.

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True

False

True. Maturities are for five or 10 years.

The time when a bond pays you back your principal is called its _______.

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Par value

Maturity

CPI-U

Maturity. The maturity is the date on which you get your principal back.

Only the principal of an inflation-adjusted bond is adjusted for inflation.

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True

False

False. Semi-annual interest payments (not the interest rate) will also adjust for inflation as the principal adjusts.

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