Income Intermediate: Treasury Inflation-Adjusted Securities

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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.

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.

Inflation is the continuous rise of prices over time.

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True

False

True. When we speak of the rising of prices, we call it "inflation."

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.

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.

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