If the Yield to Maturity for a Par Value TIPS

question 61

Multiple Choice

If the yield to maturity for a par value TIPS bond with eight years to maturity is 3 percent, and the yield to maturity of a U.S Treasury note with 8 years is 4.25 percent, this implies that

• A) the expected annual rate of inflation over the next eight years is -1.25 percent.
• B) the expected annual rate of inflation over the next eight years is 1.25 percent.
• C) the expected annual rate of inflation over the next eight years is -2.25 percent.
• D) the expected annual rate of inflation over the next eight years is 2.25 percent.
• E) the expected annual rate of inflation over the next eight years is 0 percent.

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Definitions:

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