If the value of a Treasury bond was higher than the value of the sum of its parts (STRIPPED cash flows), you could
A) profit by buying the stripped cash flows and reconstituting the bond.
B) not profit by buying the stripped cash flows and reconstituting the bond.
C) profit by buying the bond and creating STRIPS.
D) not profit by buying the stripped cash flows and reconstituting the bond and profit by buying the bond and creating STRIPS.
E) None of the options are correct.

Question

Quizplus · Accepted Answer

If the value of the Treasury bond is higher than the sum of its stripped cash flows, you can profit by buying the stripped cash flows at a lower price and reconstituting them into the bond, which has a higher value.

If the Value of a Treasury Bond Was Higher Than