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Income Intermediate: Treasury Inflation-Adjusted Securities

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1.
If you earn interest on an inflation-adjusted bond, _______.
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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.
2.
Only the principal of an inflation-adjusted bond is adjusted for inflation.
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False. Semi-annual interest payments (not the interest rate) will also adjust for inflation as the principal adjusts.
3.
The process of selling a bond's coupons and principal separately is called stripping.
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True. Stripping involves separating the two from each other.
4.
Par value measures the effects of inflation.
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False. The CPI-U measures the effects of inflation.
5.
The principal of an inflation-adjusted bond is always guaranteed to its investor.
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False. The principal of an inflation-adjusted bond is guaranteed by the full faith and credit of the US government if an investor holds onto it until its maturity.