The principle underlying Treasury strips is that an investor will earn a higher interest rate when reinvestment risk is eliminated.

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Treasury strips, also known as zero-coupon bonds, are created by separating the coupon payments from a Treasury bond and selling them as individual securities. Since the investor does not receive any interest payments during the life of the bond, there is no reinvestment risk. Therefore, the investor can earn a higher interest rate compared to a traditional Treasury bond where the investor receives periodic interest payments and is subject to reinvestment risk.

The Principle Underlying Treasury Strips Is That an Investor Will