Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Inflation-linked bonds, also known as treasury inflation-protected securities (TIPS), are used to protect against inflation.
What are the benefits and drawbacks of buying TIPS?
Expert Solution
Step 1
What are the TIPS?
The TIPS are bonds issued by the government. TIPS are adjusted to inflation in order to protect the real value of bonds. Indexation is done to protect the investor's purchasing power. Inflation reduces the purchasing power of money. The TIPS are issued to overcome the problem of inflation.
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