An index-linked bond is a form of borrowing by the issuer seeking to raise funds from investors.

The issuer promises to pay a fixed rate of interest to the bondholder adjusted for inflation over the investment term using either the Retail Price Index (RPI) or Consumer Price Index (CPI). Therefore, the amount of interest paid by the issuer may exceed the advertised coupon rate if inflation is to rise, but conversely it may be lower than the coupon if inflation falls.

This rate of interest is paid until the date that the bonds mature. On this date, the issuer also promises to repay the amount borrowed.

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