Dillon can buy a fixed-rate bond with a 4% coupon, a $10,000 principal, and five years left to maturity or a TIPS with the same principal and age to maturity with a 2% coupon. Compare the two bonds if Inflation runs 3% per year on average.
Select the best answer from the choices provided.
OA. The fixed-rate bond has a better yield.
OB.
The TIPS has a better yield.
O C.
Both yields are roughly equivalent.
OD
The yields vary with inflation.