Income Intermediate: Treasury Inflation-Adjusted Securities

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1.
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.
2.
The main advantage of inflation-adjusted securities is _______.
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They offer an investment that maintains its purchasing power. They manage this by paying interest rates that stay ahead of inflation.
3.
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."
4.
The process of selling a bond's coupons and principal separately is called stripping.
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True. Stripping involves separating the two from each other.
5.
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.