Last Year, You Purchased a TIPS at Par

question 95

Multiple Choice

Last year, you purchased a TIPS at par. Since that time, both market interest rates and the inflation rate have increased by .25 percent. Your bond has most likely done which one of the following since last year?

• A) Decreased in value due to the change in inflation rates
• B) Experienced an increase in its bond rating
• C) Maintained a fixed real rate of return
• D) Increased in value in response to the change in market rates
• E) Increased in value due to a decrease in time to maturity

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Definitions:

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.

Variable Costs

Costs that change in proportion to the level of output or activity in a business.

Economic Profits

The surplus remaining after total costs are deducted from total revenue, factoring in both explicit and opportunity costs.

Normal Rate

Refers to the standard, expected rate in financial or economic contexts, often used as a benchmark.