Income Intermediate: Treasury Inflation-Adjusted Securities

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1.

The process of selling a bond's coupons and principal separately is called stripping.

Choose wisely. There is only one correct answer.

True

False

True. Stripping involves separating the two from each other.

2.

You don't have to pay state income taxes on interest earned from Treasury inflation-adjusted securities.

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True

False

True. You are exempt from state income taxes on interest earned from Treasury inflation-adjusted securities.

3.

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.

4.

The time when a bond pays you back your principal is called its _______.

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Par value

Maturity

CPI-U

Maturity. The maturity is the date on which you get your principal back.

5.

A bond's principal will lose its purchasing power over time unless it is adjusted for inflation.

Choose wisely. There is only one correct answer.

True

False

True. That is why some bonds adjust their interest rates to stay ahead of inflation.

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