Question

TIPS are

	A.	Treasury bonds that pay a variable rate of interest
	B.	UK bonds that protect investors from default risk
	C.	Securities that trade on the Toronto stock index
	D.	Treasury bonds that protect investors from inflation

Answer 1

Ans Treasury bonds that protect investors from inflation

TIPS are Tresury Inflation protected securities are indexed to inflation to protect investors from a decline in purchasing power of money. The face value (principal) of the bond is adjusted for inflation i.e. as inflation rises face value rises. The interest (coupon) payment varies with the adjusted face value of the security with the coupon rate remaining constant. The principal amount of the TIPS are protected so the investors will not receive less than the original invested amount,