Which of the Following Statements About STRIPs Is True

question 33

Multiple Choice

Which of the following statements about STRIPs is true?

• A) STRIPs are sold directly by the Treasury Department
• B) When a STRIP is created, all interest payments become one security and the principal payment becomes the other.
• C) Many small investors prefer STRIPs because they require a lower minimum investment than original Treasury notes and bonds.
• D) Treasury securities dealers create STRIPs because they expect to sell the created zero-coupon securities for more than what they paid for the original Treasury security.
• E) None of the above statements is true.

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Definitions:

Proration

The act of distributing or assigning an amount in proportion to a certain measure, often applied in finance and accounting for dividing expenses or revenues.

Taxable Year

A 12-month period for which tax returns are calculated and filed, often aligning with the calendar year or a company’s fiscal year.

Property Taxes

Taxes imposed by local governments on the value of real estate property, which fund public services such as schools, roads, and emergency services.

Annual Tax Bill

The total amount of taxes due to be paid each year by an individual or organization.