Question: What effect do you think the inflation-adjusted interest rate has on the cost of an I-bond in comparison with similar bonds with no allowance for

What effect do you think the inflation-adjusted interest rate has on the cost of an I-bond in comparison with similar bonds with no allowance for inflation?

One of the negatives of debt instruments when compared with equity assets is that once issued, fixed-rate debt instruments cannot adjust for inflation. In fact rising inflation generally increases the risk-free rate of return, and new bond issues command a higher rate than previously issued bonds. From your study of the time value of money in Chapter 4, you may have discovered that when interest rates rise, the market value of previously issued bonds falls.

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