Mrs Okafor is worried that inflation will erode a lump sum she is investing for income. Which government security is designed to protect against this?
Index-linked gilts adjust both the coupon payments and the redemption value in line with inflation (the RPI for existing issues), protecting real value (UK Debt Management Office). A conventional gilt pays a fixed coupon, so inflation erodes it. Premium Bonds pay prizes, not inflation-linked returns, and a Treasury bill is a short-term money market instrument.
Choosing a high fixed coupon as if it were inflation protection.
Practise more FRE1 UK Financial Services, the Economy & the Bank of England questions
Exam-style questions with worked answers, then full timed mocks. Free to start.
Build a daily practice habit — a few exam-style questions a day, with worked answers. Free to start.
Start practising →Original practice material mapped to the published CeMAP FRE1 learning outcomes. Independent, not endorsed by Walbrook (formerly LIBF). Verify figures and rules against current guidance before relying on them.
