Practice Quiz

Financial Planner

Category - Investment Planning

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Assume you have a client that is willing to take a moderate level of risk when investing. They are interested in government coupons and want to take advantage the highs and lows of inflation, what should be recommended?
  1. U.S. Series EE and HH Bonds
  2. Banker’s Acceptances
  3. Treasury Inflation Protected Securities
  4. Money Market Accounts
Explanation
Answer: C - A client willing to take a moderate level of risk, is interested in government coupons, and wishes to take advantage of highs and lows of inflation should be geared towards Treasury Inflation Protected Securities (TIPS). TIPS are securities issued by the federal government that have coupon payments that periodically adjust to changes in the inflation rate. The changes in inflation are represented in the principal and not the coupon. The inflation-adjusted principal is multiplied by the real rate to get the appropriate coupon payment.
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