SIE practice questionhardTreasury securities
Which statement is TRUE about STRIPS?
- AThey have credit risk from private issuers
- BThey make semiannual interest payments
- CThey can only be purchased by institutions
- DThey are backed by the U.S. government and have no reinvestment risk for interest payments✓ Correct answer
Explanation
Why D — They are backed by the U.S. government and have no reinvestment risk for interest payments
STRIPS are U.S. Treasury zero-coupon securities, so the investor avoids reinvestment risk on interest payments. They do not pay interest, can be owned by individuals, and have no private credit risk.
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