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Bonds 206: STRIPS

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1.
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.
2.
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.
3.
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.
4.
All the following are benefits of STRIPS except _______.
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Tax-free returns. Although STRIPS are eligible for tax-deferred retirement accounts, your earnings will be taxed as income at some point.
5.
Coupon stripping means separating a bonds _______ from its _______.
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Interest / principal. Coupon stripping means separating a bonds interest from its principal and issuing separate securities based on each.