Income Intermediate: Treasury Inflation-Adjusted Securities

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1.

Only the principal of an inflation-adjusted bond is adjusted for inflation.

Choose wisely. There is only one correct answer.

True

False

False. Semi-annual interest payments (not the interest rate) will also adjust for inflation as the principal adjusts.

2.

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.

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.

In periods of deflation, inflation-adjusted securities will increase in value.

Choose wisely. There is only one correct answer.

True

False

False. In periods of deflation, inflation-adjusted securities will decrease in value, but not below their par values.

5.

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

Choose wisely. There is only one correct answer.

True

False

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

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