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Bonds 206: STRIPS

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1.
STRIPS are sold by the US Treasury.
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False. While backed by receipts for US Treasury securities, the STRIPS themselves are created and sold by brokerage firms.
2.
Under the book entry system, the brokerage does not hold certificates to the securities it buys.
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True. Under the book entry system, the Treasury records the firms ownership of the bond or note, but no actual certificate is exchanged.
3.
STRIPS offer the safety of US Treasury securities without the high buy-in cost.
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True. The cost of STRIPS is generally far lower than the minimum purchase requirement for US Treasury securities.
4.
If a zero coupon security were called, the holder would lose the interest the security would have paid.
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False. Zero coupon securities cannot be called; they always pay face value at maturity, which makes them a source of reliable returns.
5.
Zero coupon bonds issued by brokerages based on receipts for US Treasury instruments are known as ________.
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STRIPS. The others are examples of securities created prior to the STRIPS system by brokerages that stripped coupons from Treasury securities they bought and held in escrow.