When inflation rises the yield and price for TIPS will:
A. Yield rise, price fall
B. Yield fall, price rise
C. Yield rise, Price rise作者: bodhisattva 时间: 2011-7-11 19:01
B
NO EXCUSES作者: Zestt 时间: 2011-7-11 19:01
Is the price = the principal value?作者: mp3bu 时间: 2011-7-11 19:01
deriv108 Wrote:
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> Is the price = the principal value?
No.作者: IAmNeil 时间: 2011-7-11 19:01
How is it priced? Not a typical bond since its principal changes with inflation.作者: Roflnadal 时间: 2011-7-11 19:01
Schweser(Book3,P110) says TIPS is inflation risk free, but does its real value still change with inflation rate?作者: Chuckrox 时间: 2011-7-11 19:01
Easy peasy ... B!作者: ll11 时间: 2011-7-11 19:01
"These[TIPS] provide a fixed coupon (the real portion) plus an adjustment equal to the change in consumer prices. In principle, indexed bonds are the perfect risk-free asset because, unlike conventional bonds, they entail no risk from unexpected inflation. However, the yield on indexed bonds still changes over time, and in practice it varies with three economic factors.
Economic Observation, Effect on Real Bond Yields
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Economic growth rising (falling), Rise (fall)
Inflation expectations rising (falling), Fall (rise)
Investor demand rising (falling), Fall (rise)"
The above is from Curriculum, Bok 3, page 95.
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The interest payment increases if the inflation rises.
The nominal yields[coupon rates] are fixed.
Correct me if I'm wrong.
Edited 2 time(s). Last edit at Thursday, April 21, 2011 at 08:05AM by deriv108.作者: Darien 时间: 2011-7-11 19:01