Inflation-Indexed Bonds

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As the name suggests, in inflation-indexed bonds, the interest and principal payments are indexed to the inflation rate. This way the inflation-indexed bonds protect the investors from any rise in the inflation rate, and thereby allow investors to maintain their purchasing power.

These bonds are also called inflation-linked bonds.

For inflation-indexed bonds, the coupon bond is equal to the inflation index multiplied by the nominal coupon rate.

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