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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.
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.
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.
Any US Treasury security is eligible for STRIPS.
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False. Only Treasury securities with maturities of 10 years or longer are eligible for STRIPS.