This document discusses different types of inflation-adjusted treasury bonds offered by the US government, including TIPS, I-Bonds, and STRIPS. It explains that these bonds are designed to protect the principal investment from inflation by adjusting the principal or interest payments based on the Consumer Price Index. The document provides details on maturity periods, interest rates, tax considerations, and benefits of these specialized treasury instruments.
Assignment for my macroeconomics class covering fiancial markets, financial intermediaries & institutions, the federal government deficit as well as time value money concepts.
A bond that releases interest payments on the basis of a particular price index is known as Indexed Bonds or Index-Linked Bonds or Inflation-Indexed Bonds.
To know more about it, click on the link given below:
https://efinancemanagement.com/sources-of-finance/indexed-bonds-meaning-examples-advantages-and-more
W E B E X T E N S I O N 5BA Closer Look at TIPSTreasury I.docxdickonsondorris
W E B E X T E N S I O N 5B
A Closer Look at TIPS:
Treasury Inflation-
Protected Securities
I nvestors who purchase bonds must constantly worry about inflation. If inflation turnsout to be greater than expected, bonds will provide a lower than expected real return.To protect themselves against expected increases in inflation, investors build an infla-
tion risk premium into their required rate of return. This raises borrowers’ costs.
In order to provide investors with an inflation-protected bond, and possibly to
reduce the cost of debt to the government, on January 29, 1997, the U.S. Treasury
issued $7 billion of 10-year inflation-indexed bonds called Treasury Inflation-
Protected Securities (TIPS). Since then, the Treasury has continued to offer TIPS
with original maturities up to 30 years. To see how TIPS work, let’s take a closer
look at the TIPS that were auctioned on April 7, 1999. These TIPS mature on April
15, 2029, and pay interest on April 15 and October 15 of each year. The bonds have
a fixed coupon rate of 3.875%, but they pay interest on a principal amount that
increases with inflation. At the end of each 6-month period, the principal (originally
set at par, or $1,000) is adjusted by the inflation rate. For example, on April 15, 1999,
the Reference CPI (as defined by the U.S. Treasury) was 164.39333. At the time of the
first coupon payment on October 15, 1999, the Reference CPI was 166.88065. The
Index Ratio is defined as the ratio of the current CPI and the original CPI:
Index Ratio ¼ 166:88065=164:39333 ¼ 1:01513
In essence, this Index Ratio measures the amount of inflation since the bond was first
issued. The inflation-adjusted principal is then calculated as $1,000 (Index Ratio) =
$1,000(1. 01513) = $1,015.13. So, on October 15, 1999, each bond paid interest of
(0.03875/2)($1,015.13) = $19.67. Note that the interest rate is divided by 2 because in-
terest on these (and most other) bonds is paid twice a year.
By April 15, 2000, a bit more inflation had occurred, and the inflation-adjusted
principal was up to $1,029.04 (based on the Index Ratio at that time).1 On April 15,
2000, each bond paid interest of 0.03875/2 × $1,029.04 = $19.94. Thus, the total re-
turn during the first year consisted of $19.67 + $19.94 = $39.61 of interest and
$1,029.04 – $1,000.00 = $29.04 of “capital gains,” or $39.61 + $29.04 = $68.65 in to-
tal. Thus, the total rate of return, ignoring compounding, was $68.65/$1,000 =
6.865%. Therefore, if you had been able to buy this bond for $1,000, you would
have received a real rate of return of 3.875%.2
This same adjustment process will continue each year until the bonds mature on
April 15, 2029, at which time they will pay the adjusted maturity value. Thus, the
1The U.S. Treasury publishes the Reference CPIs and Index Ratios each month. For the April 2000 va-
lues, see http://www.treasurydirect.gov/instit/annceresult/tipscpi/2000/of042000cpi.pdf.
2The auction price usually differs slightly from the $1,0 ...
Assignment for my macroeconomics class covering fiancial markets, financial intermediaries & institutions, the federal government deficit as well as time value money concepts.
A bond that releases interest payments on the basis of a particular price index is known as Indexed Bonds or Index-Linked Bonds or Inflation-Indexed Bonds.
To know more about it, click on the link given below:
https://efinancemanagement.com/sources-of-finance/indexed-bonds-meaning-examples-advantages-and-more
W E B E X T E N S I O N 5BA Closer Look at TIPSTreasury I.docxdickonsondorris
W E B E X T E N S I O N 5B
A Closer Look at TIPS:
Treasury Inflation-
Protected Securities
I nvestors who purchase bonds must constantly worry about inflation. If inflation turnsout to be greater than expected, bonds will provide a lower than expected real return.To protect themselves against expected increases in inflation, investors build an infla-
tion risk premium into their required rate of return. This raises borrowers’ costs.
In order to provide investors with an inflation-protected bond, and possibly to
reduce the cost of debt to the government, on January 29, 1997, the U.S. Treasury
issued $7 billion of 10-year inflation-indexed bonds called Treasury Inflation-
Protected Securities (TIPS). Since then, the Treasury has continued to offer TIPS
with original maturities up to 30 years. To see how TIPS work, let’s take a closer
look at the TIPS that were auctioned on April 7, 1999. These TIPS mature on April
15, 2029, and pay interest on April 15 and October 15 of each year. The bonds have
a fixed coupon rate of 3.875%, but they pay interest on a principal amount that
increases with inflation. At the end of each 6-month period, the principal (originally
set at par, or $1,000) is adjusted by the inflation rate. For example, on April 15, 1999,
the Reference CPI (as defined by the U.S. Treasury) was 164.39333. At the time of the
first coupon payment on October 15, 1999, the Reference CPI was 166.88065. The
Index Ratio is defined as the ratio of the current CPI and the original CPI:
Index Ratio ¼ 166:88065=164:39333 ¼ 1:01513
In essence, this Index Ratio measures the amount of inflation since the bond was first
issued. The inflation-adjusted principal is then calculated as $1,000 (Index Ratio) =
$1,000(1. 01513) = $1,015.13. So, on October 15, 1999, each bond paid interest of
(0.03875/2)($1,015.13) = $19.67. Note that the interest rate is divided by 2 because in-
terest on these (and most other) bonds is paid twice a year.
By April 15, 2000, a bit more inflation had occurred, and the inflation-adjusted
principal was up to $1,029.04 (based on the Index Ratio at that time).1 On April 15,
2000, each bond paid interest of 0.03875/2 × $1,029.04 = $19.94. Thus, the total re-
turn during the first year consisted of $19.67 + $19.94 = $39.61 of interest and
$1,029.04 – $1,000.00 = $29.04 of “capital gains,” or $39.61 + $29.04 = $68.65 in to-
tal. Thus, the total rate of return, ignoring compounding, was $68.65/$1,000 =
6.865%. Therefore, if you had been able to buy this bond for $1,000, you would
have received a real rate of return of 3.875%.2
This same adjustment process will continue each year until the bonds mature on
April 15, 2029, at which time they will pay the adjusted maturity value. Thus, the
1The U.S. Treasury publishes the Reference CPIs and Index Ratios each month. For the April 2000 va-
lues, see http://www.treasurydirect.gov/instit/annceresult/tipscpi/2000/of042000cpi.pdf.
2The auction price usually differs slightly from the $1,0 ...
Survivor universal life insurance 4088541883 san jose california connie dello...Connie Dello Buono
connie dello buono 4088541883 san jose california ca life ins lic 0G60621 on page 3 is about preserving your heir's inheritance, charitable gifts, key person coverage and wealth transfer
While some people might have the perception that municipal bonds are for investors who are in or near retirement, many investors who are still in their “working years” are now considering municipal bonds as an appropriate wealth preservation tool.
The Federal Reserve is not a part of U.S. Government. It operates on.pdfpreetajain
The Federal Reserve is not a part of U.S. Government. It operates on its own and is not governed
by any government policy. The only danger of directly borrowing funds from the Federal
Reserve is that the U.S. Government (Treasury Department) will increase its national debt which
is already on the rise from the year 2000.
The yield curve is a graphic representation of interest rates for similar-quality bonds at different
maturities and is as such viewed as a reflection of expectations of future interest rates. The yield
curve also enables investors to compare the yields offered by bonds of short-, medium- and long-
term maturities when making investment decisions.
The most common shapes that the yield curve can take are represented by a normal, an inverted
and a humped yield curve. When short-term interest rates are lower than long-term interest rates,
the yield curve takes a normal shape. If the opposite holds, i.e. short-term interest rates are higher
than long-term interest rates, the yield curve is said to be inverted. Finally, when a yield curve is
humped, medium-term interest rates are higher than short-term and long-term interest rates.
When the yield curve is normal, investors expect interest rates in the future to be higher. The
higher interest rates would be a result economic growth and higher inflation in the future. A
normal yield curve also tells investors that long-term bonds yield a higher return than short-term
bonds. Hence, investors with longer investment horizons might prefer to invest in long-term
rather than short-term bonds. However, taking into account expectations of inflation as reflected
in the shape of the yield curve, the higher return on a long-term security will in fact give an
investor lower buying power as future cash flows are discounted at higher interest rates due to
inflation. Moreover, the cash invested as principal will have a substantially lower purchasing
power when it is returned in the future (say in 20 years), when interest rates are significantly
higher. As a means of protecting against inflation, investors might consider altering their fixed
income portfolio allocations and shifting some of their holdings into securities that are immune
to inflation, such as TIPS. TIPS (Treasury Inflation Protected Securities) pay a principal at
maturity that is adjusted for inflation and they also pay coupons as a percentage of the adjusted
principal.
Solution
The Federal Reserve is not a part of U.S. Government. It operates on its own and is not governed
by any government policy. The only danger of directly borrowing funds from the Federal
Reserve is that the U.S. Government (Treasury Department) will increase its national debt which
is already on the rise from the year 2000.
The yield curve is a graphic representation of interest rates for similar-quality bonds at different
maturities and is as such viewed as a reflection of expectations of future interest rates. The yield
curve also enables investors to compare .
For Those Who Want to Prosper & Thrive in Retirementfreddysaamy
http://ekinsurance.com/financial/retirement/
Our core capital should be designed to outlive us. In fact, it’s important for you to start thinking about your money in terms of it outliving you, not the other way around. You don’t want to outlive your money.
What are the financial markets and what purposes do they serveA f.pdfAnkitchhabra28
What are the financial markets and what purposes do they serve?
A financial market is a broad term describing any marketplace where buyers and sellers
participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial
markets are typically defined by having transparent pricing, basic regulations on trading, costs
and fees, and market forces determining the prices of securities that trade.
Financial markets can be found in nearly every nation in the world. Some are very small, with
only a few participants, while others - like the New York Stock Exchange (NYSE) and the forex
markets - trade trillions of dollars daily.
Investors have access to a large number of financial markets and exchanges representing a vast
array of financial products. Some of these markets have always been open to private investors;
others remained the exclusive domain of major international banks and financial professionals
until the very end of the twentieth century.
What are financial intermediaries? How do these intermediaries function in the economy?
Financial intermediaries channel funds from people who have extra money or surplus savings
(savers) to those who do not have enough money to carry out a desired activity (borrowers). A
financial intermediary is typically an institution that facilitates the channeling of funds between
lenders and borrowers indirectly. That is, savers (lenders) give funds to an intermediary
institution (such as a bank), and that institution gives those funds to spenders (borrowers). This
may be in the form of loans or mortgages. Alternatively, they may lend the money directly via
the financial markets, which is known as financial disintermediation.
Financial intermediaries help circulating money in the system. If money is staying idle (e.g.
under your bed pillow or as gold in your locker) then it is not good for the economy. Money
must keep changing hands. If you look at this from a different angle: if nobody buys skin
whitening creams then who will feed the families of those chemists who work there And the
businessman who supplies raw material to that factory? They promote the habit of savings.
Individual can use that saved money in bad times / emergency and earn profit in between. A
needy businessman will easily get loans.
When businessmen can get loans easily at a reasonable cost, they’ll start new business, expand
existing business, hire more employees, increase production of goods / services = GDP
increases. When people are making more money, they spend more money. A family goes to
restaurant, poor waiter makes money. Family hires maid, gardener, driver. Family buys new car,
mobile or bike- it breaks down, the repairman makes money. That’s how money trickles down
from rich people to poor people.
What is a federal government budget deficit? What is the national debt? How does a budget
deficit affect the economy?
The federal government budget deficit is when the Federal spending is greater than the tax
reve.
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
Abhay Bhutada Leads Poonawalla Fincorp To Record Low NPA And Unprecedented Gr...Vighnesh Shashtri
Under the leadership of Abhay Bhutada, Poonawalla Fincorp has achieved record-low Non-Performing Assets (NPA) and witnessed unprecedented growth. Bhutada's strategic vision and effective management have significantly enhanced the company's financial health, showcasing a robust performance in the financial sector. This achievement underscores the company's resilience and ability to thrive in a competitive market, setting a new benchmark for operational excellence in the industry.
Seminar: Gender Board Diversity through Ownership NetworksGRAPE
Seminar on gender diversity spillovers through ownership networks at FAME|GRAPE. Presenting novel research. Studies in economics and management using econometrics methods.
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
Yes of course, you can easily start mining pi network coin today and sell to legit pi vendors in the United States.
Here the telegram contact of my personal vendor.
@Pi_vendor_247
#pi network #pi coins #legit #passive income
#US
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
how to sell pi coins in all Africa Countries.DOT TECH
Yes. You can sell your pi network for other cryptocurrencies like Bitcoin, usdt , Ethereum and other currencies And this is done easily with the help from a pi merchant.
What is a pi merchant ?
Since pi is not launched yet in any exchange. The only way you can sell right now is through merchants.
A verified Pi merchant is someone who buys pi network coins from miners and resell them to investors looking forward to hold massive quantities of pi coins before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
how to sell pi coins effectively (from 50 - 100k pi)
Inflation Adjusted Treasury Bonds
1. Inflation Adjusted Treasury Bonds
Majority of the people invest in Treasury bonds to protect their investments. They do so to protect
their money. However, one drawback of the treasury bond is tha it loses purchasing power when
t
inflation takes its toll. To protect the bonds frominflation, the United States Treasurydesigned
securities, which adjust with inflation and are therefore referred to as inflation adjusted treasury
bonds. The inflation adjusted treasury bonds are provided by the United States government. They
are also known as government bonds.
Inflation adjusted treasury bonds, adjust themselves as per the CPI-U or the Consumer Price
Index (urban consumers). The CPI-U is one of the measuring tools of inflation. The CPI-U is
published , for the knowledge of the public every month, by the Bureau Of Labor Statistics.(United
States Department Of Labor).
Inflation adjusted treasury securities are mainly of four types. All these securities enjoy the benefit
of inflation adjustment. They are:
Treasury bonds
Treasury bills
TIPS or treasury inflation protection securities
Treasury notes
I) Inflation adjusted treasury bonds:
These types of bonds are characterized by having maturity periods, which are the longest. The
maturity period of inflation adjusted treasury bonds range between 10 years and 30 years. One can
avail of coupon payment at intervals of six months.
II) Treasury Bills or T bills:
The maturity time of treasury bills is one year or less than a year. In case of treasury bills, the
interest is not paid before the bill matures. Treasury bills are considered to be very safe and do not
involve much risk.
III) Treasury notes:
Treasury notes are also known as T notes. The maturity time ranges between 2 years to 10 years.
2. Maturity time of 2 years, 5 years, 10 years, have denominations ranging from USD$1,000-
USD$1,000,000. Coupon payment at intervals of 6 months is available.
IV) TIPS or Treasury inflation protected securities:
TIPS are inflation-indexed bonds. These bonds are issued by the United States treasury. In these
types of bonds, adjustment of the principal amount is made according to the CPI or consumer price
index. TIPS, usually gives a different interest amount, when it is multiplied by the principal, which
is inflation adjusted. However, there is constancy in the coupon rate. Term of the bond ranges
between 5years to 20 years.
TIPS (Treasury Inflation Protected Securities)
These are a lot like other treasury notes and treasury bonds. They're sold with a face value of
$1000, and the interest rate is determined in an auction. Individual purchasers can skip the auction
process and just buy at the auction price (which guarantees you the samereturn as the investment
professionals whose bids won the auction).
The interest rate is usually pretty low (currently running around 2.3% to 2.4%), which is not as bad
as it sounds, because it is paid on the inflation-adjusted face value of the bond. An adjusted face
value is calculated for each day and is announced monthly when the new CPI numbers are
released. For example, the face value of the 3% 10-year TIPS that was auctioned in 2002 was
1158.80 on September 1st. As long as inflation continues, the face value will go up--and the
interest payments, calculated as a percentage of face value, will go up as well.
At maturity you get the final adju
sted face value. The face value won't go below $1000, giving you
some protection against deflation as well.
If you have to sell before maturity, though, you're not guaranteed the face value. The price will
depend on current interest rates and current inflationary expectations.
I-Bonds
These are savings bonds, rather like ordinary savings bonds. They're sold in various
denominations, from $25 to $10,000. They also pay a fixed rate plus an inflation adjustment, but
the calculation is different. Instead of calculating an adjusted face value and then applying the
fixed rate to that, the treasury calculates a quot;composite earnings ratequot; that combines both parts. The
composite rate is calculated every six months, based on the inflation rate of the previous six
months.
The fixed part of the rate is determined by the Treasury twice a year. It applies to all bonds sold for
the next six months, and remains in effect for the lifetime of the bond (30 years).
You can't cash in an I-Bond in the first 12 months after you buy it, and if you cash it in after less
than five years, you lose 3-months of interest.
3. After-inflation return
Back when inflation-adjusted bonds were new, they paid a pretty good rate. If you'd bought one in
2000, you could have gotten a 10-year TIPS that paid 4.25% over inflation. Until about 2003, you
could generally get 3% over inflation. Since then, the rates have dropped, mostly because interest
rates in generally are lower now.
One way to think about the rate on a TIPS is that it should be exactly the same as the rate on an
ordinary treasury security of thesame maturity minus the expected inflation between now and
then. So the rate on a TIPS goes down anytime the expected inflation rate goes up, plus it goes
down anytime other interest rates go down.
The rates on I-Bonds used to be reasonably competitive with the rates on TIPS (from 1998 until
2001 they were 3% or higher). Since then, though, they've fallen quite low. The current fixed rate
on an I-Bond is just 1.3% over inflation.
Tax Considerations
One reason to consider I-Bonds, despite the very low rate, is that they've got the same tax
advantages of other savings bonds. You can choose to pay taxes on the interest every year (if, for
example, you're a child with almost no income who will owe no tax) or you can chose to wait and
pay taxes on the income only when you cash in the bond. Further,if you use the money to pay for
certain kinds of education expenses, you don't need to pay taxes on it at all.
TIPS, on the other hand, have a unique tax problem: you not on owe taxes each year on the
ly
interest that you get, you also owe taxes on the increase in face value due to inflation (even though
you don't actually get that money until the bond matures). Some people consider this a big deal,
and don't recommend that you buy such bonds except in a tax-sheltered plan such as an IRA or a
401(k). Personally, I don't see how it's much worse than the tax treatment of a mutual fund where
you're reinvesting the dividends, where you still owe taxes on the dividends and the capital gains,
even though the money has been reinvested in the fund.
The interest on TIPS and I-Bonds, like all US Treasury interest, is exempt from state and local
income taxes.
Benefits of Treasuries
4. In any financial climate, U.S. Treasury securities offer investors many benefits, including:
Safety
Backed by the full faith and credit ofthe U.S. government, Treasuries are considered ideal for
safeguarding and preserving your princi al.1
p
Guaranteed return of principal
If held to maturity, Treasuries are guaranteed to repay your original investment. So no matter how
volatile the market may be, as a Treasury investor, you never risk your principal if you hold the
security until maturity.
Guaranteed with fixed rate income
With Fixed Rate Treasuries, you'll know exactly what your income will be and when you will
receive interest payments.You'll receive a steady income of semi-annual interest payments when
you purchase Treasury notes or bonds.
Tax advantages
Although federally taxable, the interest on Treasuries is exemptfrom both state and local taxes.
Thus, your after-tax return may be higher than the same yields on fully taxable investments like
FDIC-insured, fixed-rate CDs, especially if you live in a high-tax state.
Flexibility
Want a short-term investment for your funds while you decide among alternative investments? Or,
are you saving for the long term, like college or retirement? You can choose from the many
Treasury issues and maturities available to meet your investing goals.
Liquidity
Looking for a ready source of cash? The active secondary market for Treasuries enables you to sell
your Treasury securities before maturity. Of course, you'll receive full face value if you hold a
Treasury until maturity.
Choose from Treasury bills, notes, bonds, Treasury inflation-indexed securities and STRIPS
Minimum investment2
Treasury bills
$10,000 face value investment plus $1,000 increments.
Treasury notes and bonds
$1,000 face value investment plus $1,000 increments.
Treasury inflation-indexed securities
The treasury inflation-indexed security is a new security with an inflation adjusted principal
amount. Interest payments will be calculated from the adjusted amount (which could be more or
less than the original value at issuance depending on changes in the Consumer Price Index (CPI-
U)).
If you are looking for investment growth over time, consider STRIPS
5. STRIPS are Treasury bonds that have been stripped of their interest and principal payments. If held
to maturity, they guarantee the return of your principal, plus all accrued interest. Because they're
direct obligations of the U.S. Treasury, they're considered among the safest types of inves tments.
Because STRIPS are sold at deep discount, they usually cost less than their face value. Your return
is the difference between what you pay and what you receive at maturity. The interest on STRIPS
accrues over the life of the bond and is automatical y reinvested. With this compounding of
l
interest, even a small initial investment can achieve growth over time.
STRIPS do not pay interest until maturity, so their prices tend to bemore volatile than bonds
which pay interest at regular intervals. And although interest isn't paid until your STRIPS mature,
it is taxable the year it's credited to you, which is why STRIPS are favored for tax-deferred
accounts such as Keoghs and IRAs.
How Much Does a $5,000 Zero-Coupon Treasury Actually Cost?
Years to Maturity
Maturity
Yield 30 25 20 15 10 5
Value
4% $1,540 $1,880 $2,280 $2,780 $3,380 $4,110 $5,000
5% 1,160 1,480 1,880 2,400 3,070 3,920 5,000
6% 870 1,170 1,556 2,090 2,790 3,740 5,000
7% 660 920 1,290 1,810 2,540 3,570 5,000
8% 500 730 1,070 1,580 2,320 3,400 5,000
Numbers are approximations for example purposes only. Contact your Schwab office for current
market values.