Which One of the Following Statements Correctly Applies to STRIPS

question 62

Multiple Choice

Which one of the following statements correctly applies to STRIPS?

• A) STRIPS securities pay a fixed-rate, semiannual interest payment.
• B) A 10-year T-bond is broken into 20 STRIPS securities.
• C) Treasury securities are broken into STRIPS securities by brokers.
• D) STRIPS securities pay a variable-rate, semiannual interest payment.
• E) All STRIPS securities taken from the same Treasury security must be registered to the same owner.

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Definitions:

Interest

The cost of borrowing money or the return earned on an investment, typically expressed as a percentage.

Interest-Bearing Note

A debt instrument in which the issuer is obligated to pay a specified interest rate on the principal amount at regular intervals until maturity, in addition to repaying the principal.

Interest Expense

The cost incurred by an entity for borrowed funds; it is the price paid for the use of borrowed money, or, for corporations, the price paid for the use of borrowed capital.