Income Intermediate: Treasury Inflation-Adjusted Securities

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Phantom income is taxable income on an inflation-adjusted bond's coupon interest.

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True

False

False. Phantom income refers to taxable income on an inflation-adjusted bond's principal interest.

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

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True

False

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

The main advantage of inflation-adjusted securities is _______.

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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.

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.

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.

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