Treasury Securities
Direct obligations of the U.S. government: T-bills (one year or less, sold at a discount), T-notes (2–10 years), T-bonds (over 10 years), TIPS (principal adjusts with CPI), and STRIPS (zero-coupon Treasuries).
The exam loves the tax mirror: Treasuries are taxed federally but exempt from state and local tax — the reverse of municipals, which are federal-exempt but generally state-taxable when issued by another state. So the “which security gives an in-state investor a state-tax break” trap answers in-state munis, not Treasuries. A second favorite is STRIPS versus TIPS as an inflation tool: a STRIP locks in one fixed nominal payout and throws off phantom income (the accreted discount is taxed yearly with no cash received), so it is a poor inflation hedge, whereas TIPS answer purchasing-power risk directly.
The classic mistake is reading “no credit risk” as “no risk.” Treasuries still carry full interest-rate and inflation risk — a long T-bond’s price swings hard when rates move, and the longer the duration the harder the swing. Memory hook: Bills are Brief, Notes are iN-between, Bonds go Beyond. (Some older question banks peg T-bonds at 20–30 years, the maturities currently auctioned.)
PlayPrepHQ study notes are written and reviewed against primary exam sources. How we create & review content →