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My Securities Industry Essentials License Exam Manual from Kaplan says the following:

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However, Investopedia says:

As a result, investors receive higher interest or coupon payments as inflation rises. Conversely, investors will receive lower interest payments if deflation occurs.

Is the interest staying the same or is it changing? Is interest payments the same as coupon payments? I think they are, and my confusion might come from the textbook saying the rate (percentage) is constant, while Investopedia says the coupon payment (not percentage) is not constant. Is that correct?

1 Answer 1

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The coupon rate is fixed, but because of the adjustments to the principal because of the inflation the interest amount will vary. Note that the quote says "The interest payments will increase...", not the rate.

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