The yield on a U.S. Treasury STRIPS security is al

Ans:A;Spot rates are the appropriate discount rates for cash flows that come at different points in time; while yield to maturity is the single discount rate that makes the present value of a bond’s promised cash flows equal to its market price. Therefore, yield to maturity is flat while spot rate is not flat because the discount rate for a payment that comes one year from now is not necessarily the same discount rate that should be applied to a payment that comes five years from now.Conceptually, spot rates are the discount rates for zero-coupon bonds, securities that have only a single cash flow at a future date.A is correct because a STRIPS security is a zero-coupon bond with no default risk and therefore represents the appropriate discount rate for a cash flow certain to be received at the maturity date for the STRIPS.