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Which of the following statements IS correct? The par value of a Treasury inflation-protected secutrity is...

Which of the following statements IS correct?

The par value of a Treasury inflation-protected secutrity is established as $1,000 over the life of the bond.

If the inflation rate is 5%, the principal of a Treasury inflation protection security will be adjusted from $1,000 to $1,050

Municipal bonds are most attractive to residents of states with low income tax rates

The biggest risk with foreign pay bonds issued by the German government is the risk of default.
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Answer #1

The correct answer is option B i.e. If the inflation rate is 5%, the principal of a Treasury inflation protection security will be adjusted from $1,000 to $1,050

The par value of a Treasury inflation-protected secutrity is established as $1,000 over the life of the bond.- Incorrect, since a TIPS adjusts its par for inflation  

If the inflation rate is 5%, the principal of a Treasury inflation protection security will be adjusted from $1,000 to $1,050- Correct , since a TIPS adjusts its par for inflation  

Municipal bonds are most attractive to residents of states with low income tax rates - Incorrect, they are attractive to residents with higher tax rates.

The biggest risk with foreign pay bonds issued by the German government is the risk of default - Incorrect, since government bonds are usually risk free.

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