SIE Understanding Products and Their Risks Question 41: Answer and Explanation

Question: 41

Which of the following is true regarding characteristics of Treasury securities?

• A. T-Bills are issued with face values of one thousand dollars or more.
• B. T-Bonds are issued with face values of one thousand dollars or more.
• C. The level of inflation affects the earning power of Treasury Inflation-Protected Securities (TIPS), just as other Treasury securities' interest payments do.
• D. Auctions for 10-year notes are held monthly.

Correct Answer: B

Explanation:

B: Choice B is correct because T-Bonds are issued with face values of one thousand dollars or more. If purchased directly from the Treasury, they may be purchased in increments of one hundred dollars, starting at one thousand dollars. Choice A is incorrect because T-Bills are usually issued with face values of one thousand dollars but are also issued with face values of one hundred dollars or multiples of one hundred dollars. Choice C is incorrect because the effective interest rate for Treasury Inflation-Protected Securities (TIPS) is adjusted, based on changes in the Consumer Price Index (CPI). The effective interest rate for TIPS is adjusted by changing the principal amount used to calculate the interest payments. Choice D is incorrect because auctions for ten-year notes are held in the last two months of each quarter: February, March, May, June, August, September, November, and December.