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Inflation-indexed Security

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An inflation-indexed security is a stock or bond whose return is promised to be higher than the rate of inflation. A company or government body will issue an inflation-indexed security (generally a bond) to attract investors who want their earnings to survive the corrosive effects of inflation. The US Treasury issues several types of inflation-indexed security, such as the Series I savings bond, whose interest rate is adjusted every six months against the prevailing rate of inflation. Other types of inflation-indexed security adjust the dollar value of the security's principal. At maturity, such a bond pays the higher of the inflation-indexed security principal or the original principal. An inflation-indexed security is popular among investors seeking to preserve their investment's value.

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