How Are TIPS Adjusted for Inflation

question 27

Multiple Choice

How are TIPS adjusted for inflation?

• A) The interest rate is adjusted for inflation during each period.
• B) The principal is adjusted once the bond reaches maturity.
• C) The principal is adjusted for inflation each period.
• D) The interest rate is adjusted once the bond reaches maturity.

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Definitions:

Profitability Index

A ratio that compares the present value of future cash flows of a project to its initial investment, used to assess the desirability of projects.

Investment Proposals

Plans or suggestions put forward for consideration, primarily for the purpose of making investments.

Profitability Index

A capital budgeting tool that calculates the ratio of the present value of future cash flows to the investment’s initial cost.

Investment Projects

Initiatives undertaken by a business or individual involving the allocation of resources with the expectation of generating future returns.