Biology Forums - Study Force

If you own a TIPS bond that promises an inflation-adjusted rate of return of 2.5 percent, and annual inflation is 3 percent in a given year,

▸ your bond's face value in the following year will be increased by the inflation rate, resulting in an increase in the amount of interest paid.

▸ the dollar amount of interest you receive will go down in the following year to compensate for inflation.

▸ you will be paid a higher rate of interest on the bond the following year.

▸ both the bond face value and the coupon rate will be increased by 3 percent the following year.

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