Explanation:
The strip is a zero-coupon security, so it has no cash flows to reinvest and therefore no reinvestment risk. However, it has more interest rate risk (higher duration) than the Treasury note.
(Book 4, Module 57.1, LO 57.a)
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Question 74
An investor is considering a 10-year stripped U.S. Treasury and a 10-year Treasury note, both with a YTM of 4.8%. Compared with the note, the strip has:
A
more interest rate risk and less liquidity risk.
B
less reinvestment risk and more interest rate risk.
C
more liquidity risk and less interest rate risk.
D
more reinvestment risk and less interest rate risk.
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