H Guys I read in others advices so called “tips for cfa exam” TIPS adjust only principal with inflation CPI-U it is true though: TIPS pay interest semiannually at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation. principal 1000 inflation CPI-U Jan-June 1% inflation CPI-U June-Dec 1% Coupon 4% (1+semi inflation rate)*principal = 1000*(1+.01) = 1 010 adjusted principal adjusted semiannual coupon payment is: adj principal *(1+semi annual coupon rate)= 1010*(.02) = 20.20 vs 20 no indexed so actually coupon payment follows the CPI-U not the coupon rate. Is this a tricky here dont you think?
Bit confused about what you mean. Yes, the interest payments fluctuate with inflation – that’s the whole point, as it means investors are guaranteed a set ‘real return’ regardless of inflation…
thank you rafal, i misunderstand this before and wonder how many topics like this for me.