Income Intermediate: Treasury Inflation-Adjusted Securities

Test your knowledge

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

Keep studying!

Review your answers below to learn more.

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

Choose wisely. There is only one correct answer.

True

False

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

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.

In periods of deflation, inflation-adjusted securities will increase in value.

Choose wisely. There is only one correct answer.

True

False

False. In periods of deflation, inflation-adjusted securities will decrease in value, but not below their par values.

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 Precision Information, publisher of the Financial Fitness Group family of products. The trade name Financial Fitness Group and the trademarks Financial Fitness CENTER™, Financial Fitness CHECKUP™ and Financial Fitness ACADEMY™ are exclusive marks of Precision Information, LLC. All rights reserved.