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How inflation-linked bonds work.

Financial Mail

| May 27, 2011 | COPYRIGHT 2001 Johnnic Communications. (Hide copyright information)Copyright

Byline: Claire Bisseker

How inflation-linked bonds work Inflation-linked bonds provide protection against inflation's erosion of real value by linking income earned and capital value to movements in consumer price inflation (CPI). For example, if an inflation-linked bond is bought at a yield of 3%, R1m invested produces R30000/year in income. If CPI rises by 5% over the next 12 months, the inflation-linked bond's capital value is adjusted upwards by 5% to R1,05m and interest paid rises in tandem. …

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