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.

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.

Par value measures the effects of inflation.

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True

False

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

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.

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

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True

False

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

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