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A(n) index is a series of fixed payments made at the end of each of a fixed number of periods at a fixed interest rate.

a) True
b) False

User Mosi
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1 Answer

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Final answer:

The statement is false because an index refers to a measure or method that adjusts payments based on certain factors like inflation, rather than being a series of fixed payments itself. Indexed bonds adjust their payments to provide a real rate of interest that accounts for inflation.

Step-by-step explanation:

The statement that an index is a series of fixed payments made at the end of each of a fixed number of periods at a fixed interest rate is false. An index is not about payments; rather, it refers to a statistical measure that represents changes in a representative group of individual data points. In financial contexts, indexing typically involves linking the performance of an investment, such as a bond or a fund, to a benchmark or an economic indicator, like inflation.

Indexed bonds, for example, offer payments that are adjusted based on the level of inflation, ensuring that investors receive a certain real rate of interest, that is a rate adjusted for inflation. This provides protection against the eroding effects of inflation on investments, promising a return that maintains its value in real terms, regardless of the inflation rate.

User Tongueroo
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