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    Inflation-Indexed Treasury Bonds

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    Assume the US economy experienced deflation during the year and that the consumer price index decreased by 1% in the first six months of the year and by 2% during the second six months of the year.

    If an investor had purchased inflation-indexed Treasury bonds with a par value of $10,000 and a coupon rate of 5%, how much would she have received in interest during the year?

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    In inflation indexed bonds it is the principle that is adjusted for inflation (or in this case deflation) and the annual interest ...

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