What is true about Treasury STRIPS?

Treasury STRIPS, which stands for Separate Trading of Registered Interest and Principal Securities, are structured products derived from U.S. Treasury bonds. The key characteristic of these instruments is that they are sold at a discount to their face value, meaning investors purchase them for less than their maturity value. This discount represents the interest earnings, which are paid as a lump sum at maturity rather than periodically throughout the life of the investment. As a result, the investor’s return is the difference between the purchase price and the par value at maturity.

Unlike traditional bonds, STRIPS do not make semiannual interest payments or any interim income; they essentially have no periodic coupon payments. Therefore, purchasing them is akin to making an initial investment that appreciates in value and matures into a full principal payment.

The other options refer to characteristics that do not apply to Treasury STRIPS. For example, they do not provide semiannual interest (this is characteristic of traditional bonds) and are not categorized by short-term duration with interim income, as STRIPS are often held until maturity without interim payments. Furthermore, while Treasury STRIPS have credit risk lower than that of corporate zero-coupon bonds, the comparison of risk is not straightforward as many factors, including credit quality and duration, impact