Income Intermediate: Treasury Inflation-Adjusted Securities

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1.
Inflation is the continuous rise of prices over time.
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True. When we speak of the rising of prices, we call it "inflation."
2.
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.
3.
You don't have to pay state income taxes on interest earned from Treasury inflation-adjusted securities.
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True. You are exempt from state income taxes on interest earned from Treasury inflation-adjusted securities.
4.
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.
5.
The principal of an inflation-adjusted bond is always guaranteed to its investor.
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False. The principal of an inflation-adjusted bond is guaranteed by the full faith and credit of the US government if an investor holds onto it until its maturity.