Kayla recently inherited a substantial sum of money and is looking to invest some of it in the bond market. She prefers to know exactly how much she will be paid when her bonds mature. Of the following options, what type of bond should she purchase?

Question

Kayla recently inherited a substantial sum of money and is looking to invest some of it in the bond market. She prefers to know exactly how much she will be paid when her bonds mature.  Of the following options, what type of bond should she purchase?

Quizplus · Accepted Answer

STRIPS (Separate Trading of Registered Interest and Principal of Securities) are a type of bond that allows investors to hold and trade the individual interest and principal components of eligible Treasury notes and bonds as separate securities. These are zero-coupon securities, meaning they are sold at a discount and do not pay interest before maturity. At maturity, the holder receives a payment equal to the face value of the bond. This makes STRIPS ideal for investors like Kayla, who prefer to know exactly how much they will be paid when their bonds mature.

Kayla Recently Inherited a Substantial Sum of Money and Is