Test your knowledge

Choose wisely. There is only one correct answer to each question.

Keep studying!

Review your answers below to learn more.

Par value measures the effects of inflation.

Choose wisely. There is only one correct answer.

True

False

False. The CPI-U measures the effects of inflation.

The main advantage of inflation-adjusted securities is _______.

Choose wisely. There is only one correct answer.

They will help you reduce your taxes

They offer an investment that maintains its purchasing power

They are not affected by interest rates

They offer an investment that maintains its purchasing power. They manage this by paying interest rates that stay ahead of inflation.

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

Choose wisely. There is only one correct answer.

True

False

True. Maturities are for five or 10 years.

A bond's principal will lose its purchasing power over time unless it is adjusted for inflation.

Choose wisely. There is only one correct answer.

True

False

True. That is why some bonds adjust their interest rates to stay ahead of inflation.

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

Choose wisely. There is only one correct answer.

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.

© Copyright 2024 Morningstar, Inc. All rights reserved. Morningstar, the Morningstar logo, Morningstar.com, Morningstar Tools are either trademark or service marks of Morningstar, Inc. In addition, we encourage you to read this important disclosure.