Which of the following statements about Treasury inflation-indexed bonds is not
ID: 1119046 • Letter: W
Question
Which of the following statements about Treasury inflation-indexed bonds is not true?
The interest payment rises when inflation occurs.
The coupon rate rises when inflation occurs.
At maturity, the securities pay the greater of face value or inflation-adjusted principal.
The principal amount used to compute the interest payment varies with the consumer price index.
A.The interest payment rises when inflation occurs.
B.The coupon rate rises when inflation occurs.
C.At maturity, the securities pay the greater of face value or inflation-adjusted principal.
D.The principal amount used to compute the interest payment varies with the consumer price index.
Explanation / Answer
B. The coupon rate rises when inflation occurs.
The coupon rate does not change. The principal is adjusted for inflation, hence there is no need to change the coupon rate. WIth change in principal, interest payment is also adjusted.
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