TIPS and CPI Review Question

Hi…I noticed a small error in this explanation…i think…

Here’s the sample question:

It says CPI reported at 2%, so the par value will fall by 2 %. I believe the adjusted par value have "increased by 2% resulting it to be $1,020…according to the explanation. Not sure if that part is a typo.

To my understanding if the CPI reported a decrease of 2%…then the par value will fall by 2%…which the adjusted par value be $980.
Also…the quiz question stated that the CPI is reported at 2%…but wasn’t specific if it was a rise or a fall…but I’m assuming it’s a rise according to the explanation of the answer.

just fyi…

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here’s the link:

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Hi @LASHY1980!

There’s one word that needs to be replaced in the question explanation. It should say “CPI reported at 2%, so the par value will rise by 2% ($20)”

When CPI is reported at 2%, that means inflation has risen by 2%. If it was a deflationary environment, it would say CPI fell by 2% or CPI was -2%. In a deflationary environment, the par value would fall, resulting in lower interest payments. Regardless, the investor would receive at least the original par ($1,000) at maturity, even if the adjusted par value was significantly below $1,000.

Minus the word ‘fall,’ everything else in the question is correct. Thanks for letting us know about this! We’ll have the question updated quickly. Please let me know if you have any other questions.


Thanks for the clarification Brandon! It helps alot. :wink:

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