Bonds

Question 1

Coupon rate

Answer 1

Money paid to investor by issuer

Question 2

TIPS

Answer 2

Treasure Inflation Protection Securities

Question 3

Nominal interest rate
Vs
Real rate

Answer 3

Interest rate you receive before in inflation
Vs
The rate of return after inflation

Question 4

How can you measure rates?

Answer 4

Using the consumer price index we can determine the real inflation rate.
3% nominal rate
2% inflation (consumer price Index)
1% real rate (after inflation)

Question 5

What happens at the end of a TIPS maturity life when you return the bond but it’s during deflation?

Answer 5

Then the bond is still repaid in full.

Investor gets repaid the greater of the initial par value or current face value.

Question 6

Phantom income

Answer 6

Taxes on your income from inflation