SIE Exam Question 970: Answer and Explanation

Question: 970

Which of the following is correct regarding the taxation of Treasury STRIPS?

• A. Tax must be paid on accrued interest each year even though no interest is received by the investor.
• B. Tax is not paid on accrued interest each year because no interest is received by the investor.
• C. Tax must be paid at maturity only.
• D. Treasury STRIPS are not taxed.

Correct Answer: A

Explanation:

For Treasury STRIPS, tax must be paid on accrued interest each year even though no interest is received by the investor.