Future Business Leaders of America (FBLA) Securities and Investments Practice Test

Which bond is characterized by receiving all interest income at maturity?

1. Series EE bonds

2. Treasury STRIPS

3. I-bonds

4. T-bonds

The correct answer is: Treasury STRIPS

The correct answer is Treasury STRIPS. Treasury STRIPS, which stand for Separate Trading of Registered Interest and Principal of Securities, are zero-coupon bonds issued by the U.S. Department of the Treasury. These instruments do not make periodic interest payments. Instead, investors purchase them at a discount and receive a single payment at maturity that includes the principal amount along with all accrued interest. This structure is beneficial for certain investors seeking to minimize reinvestment risk, as they receive the total interest income along with the principal only at the bond's maturity. This characteristic makes STRIPS a popular choice for long-term planning, as they align with investors looking for a clear payout schedule. Other bond types do not share this same feature. For example, Series EE bonds and I-bonds provide interest that accumulates and is paid out in intervals, while T-bonds offer semi-annual interest payments. These differing payment structures are what set Treasury STRIPS apart as the option characterized by receiving all interest income at maturity.