If the inflation rate is 2%, the principal of a Treasury inflation protection security will from $1,000 to $1,020.

Question

Quizplus · Accepted Answer

Treasury inflation protection securities (TIPS) are designed to protect against inflation. The principal value of TIPS increases with inflation and decreases with deflation. In this case, if the inflation rate is 2%, the principal of a TIPS will increase by 2%, which means it will increase from $1,000 to $1,020.

If the Inflation Rate Is 2%, the Principal of a Treasury