Government Bonds
A Treasury Inflation-Protected Security (TIPS) has an original principal of $1,000 and a 2% coupon rate. If inflation causes the principal to adjust to $1,050, what is the next semiannual interest payment?
TIPS pay interest based on the adjusted principal. With a 2% annual coupon rate, the semiannual rate is 1%. On an adjusted principal of $1,050, the semiannual payment is $1,050 x 1% = $10.50.
Complete Analysis & Legal Rationale
TIPS pay interest based on the adjusted principal. With a 2% annual coupon rate, the semiannual rate is 1%. On an adjusted principal of $1,050, the semiannual payment is $1,050 x 1% = $10.50.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Does not match the governing securities rule described in the explanation.
Matches the verified teaching point in the explanation.
Does not match the governing securities rule described in the explanation.
Does not match the governing securities rule described in the explanation.
Official Standard: Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.