Final answer:
Series EE Savings Bonds, which do not pay periodic interest but accumulate it over the term. They differ from corporate and Treasury bonds, which do pay regular interest and have different risk profiles.
Step-by-step explanation:
The correct answer to the student's question is B) Series EE Savings Bonds, which do not pay periodic interest payments but instead, the interest accumulates over the term of the bond. Unlike corporate bonds and Treasury bonds (notes), which typically pay regular interest to bondholders, Series EE Savings Bonds are designed to be low-risk savings products that accrue interest until maturity or redemption.
Understanding the different types of bonds is essential for financial literacy. The U.S. government issues numerous types of securities, including Treasury Inflation-Protected Securities (TIPS) and Series EE Savings Bonds. TIPS provide protection against inflation and pay periodic interest, while Series EE Bonds do not pay periodic interest but rather, grow in value as interest accrues over time. This makes Series EE Bonds a different investment compared to corporate bonds, which are issued by firms and pay a higher interest rate to compensate for the higher risk, and municipal bonds, which are issued by local governments generally to finance public projects.