Question

Nazim also recently bought bonds that have their interest rate tied to the consumer price index (CPI) so that he will be protected if inflation rates increase. Nazim has invested in ________.

1) stocks
2) real estate
3) mutual funds
4) bonds

Answer 1

Nazim has invested in indexed bonds, which are designed to protect against inflation by guaranteeing a rate of return that exceeds the inflation rate, thus maintaining the purchasing power of his investment.

Step-by-step explanation:

Nazim has invested in bonds that are tied to the consumer price index (CPI) to protect his investment against inflation. Specifically, he has bought indexed bonds, a type of bond that promises to pay a real rate of interest that is above the rate of inflation.

Introduced by the U.S. government in 1996, these bonds are attractive to investors looking for a safe investment and protection against inflation, such as retirees planning for the long term. Indexed bonds can indeed reduce concern over inflation because they guarantee a rate of return that maintains the purchasing power of the investor's money regardless of the level of inflation.