Series 7 Exam Question 294: Answer and Explanation

Question: 294

An investor has a child who will be going to college in 15 years. Which of the following is a suitable investment?

• A. T-bills
• B. T-notes
• C. Treasury receipts
• D. Long call options

Correct Answer: C

Explanation:

C. T-strips or Treasury receipts are long-term zero-coupon bonds backed by the full faith and credit of the U.S. government. Zero-coupon bonds are ideal investments to plan for future events because investors don't face reinvestment risk. In addition, the purchase price for long-term zero-coupon bonds is comparatively low.