Question

An investor is concerned that the value of the US dollar will diminish over time due...

An investor is concerned that the value of the US dollar will diminish over time due to inflation. They are saving for a 15 year time period and are only interested in a very safe investment. Which of the following will most suitable for their needs? A. Corporate bond with a AA credit rating B. Municipal bond with a AAA credit rating C. TIPS D. Treasury bond

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Answer #1

In this case, it can be seen that the investor is having a scepticism over diminishing value of United States dollar due to inflation and he should be trying to take exposure in treasury inflation protected securities because treasuries inflation protected securities will be adjusting the rate of return with inflation and it will provide inflation free rate of return for the longer period

Treasury bonds and Municipal bonds are not inflation-protected whereas corporate bonds should be avoided.

Correct answer will be option (C) TIPS.

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