Which of the following statements is true regarding TIPS?
A) As inflation changes, the interest rate on the bond is adjusted.
B) The correlation between TIPS and the S&P 500 Index has often been negative.
C) TIPS are more volatile than regular Treasury bonds of similar maturity.
D) The return on TIPS is often lower than the inflation rate.

Question

Quizplus · Accepted Answer

TIPS (Treasury Inflation-Protected Securities) are designed to protect against inflation. The principal value of TIPS adjusts with inflation, not the interest rate. Historically, TIPS have shown a negative correlation with the S&P 500 Index, as they are seen as a hedge against inflation and economic uncertainty.

Which of the Following Statements Is True Regarding TIPS