Income Intermediate: Treasury Inflation-Adjusted Securities

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1.
Issuing inflation-adjusted securities reduces the interest costs of the US Treasury department.
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True. The Treasury department saves on interest costs in this way.
2.
A bond's principal will lose its purchasing power over time unless it is adjusted for inflation.
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True. That is why some bonds adjust their interest rates to stay ahead of inflation.
3.
In periods of deflation, inflation-adjusted securities will increase in value.
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False. In periods of deflation, inflation-adjusted securities will decrease in value, but not below their par values.
4.
The time when a bond pays you back your principal is called its _______.
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Maturity. The maturity is the date on which you get your principal back.
5.
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.