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- Title
I Bonds versus TIPS: should individual investors prefer one to the other?
- Authors
Arak, Marcelle; Rosenstein, Stuart
- Abstract
Both TIPS and Series I Bonds are adjusted for inflation, offering a real rate and an inflation adjustment. The inflation adjustment is the same on both securities, but the real portion of the interest rate on TIPS is generally much higher. Despite I Bonds' less attractive real rate, they have several features that add to their value. They may be redeemed before maturity, at par value plus accrued interest, eliminating price risk. In addition, taxes may be deferred until redemption. We estimate the value of these two features, and find that they are substantial and could potentially offset the lower real rate of I Bonds.
- Subjects
BONDS (Finance); SECURITIES; PRICE inflation; CIRCULAR velocity of money; INTEREST rates
- Publication
Financial Services Review, 2006, Vol 15, Issue 4, p265
- ISSN
1057-0810
- Publication type
Article