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Bonds 206: STRIPS

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1.
Imagine that XYZ Brokers, Inc. issues STRIPS based on the semi-annual interest payments of a 10-year Treasury bond. How many different maturity dates will the STRIPS have?
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20. Although 21 strips are created, each STRIP will have a different maturity date based on the date of the specific interest payment. The last interest strip will have the same maturity as the principal strip.
2.
Coupon stripping means separating a bonds _______ from its _______.
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Interest / principal. Coupon stripping means separating a bonds interest from its principal and issuing separate securities based on each.
3.
Under the book entry system, the brokerage does not hold certificates to the securities it buys.
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True. Under the book entry system, the Treasury records the firms ownership of the bond or note, but no actual certificate is exchanged.
4.
STRIPS offer the safety of US Treasury securities without the high buy-in cost.
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True. The cost of STRIPS is generally far lower than the minimum purchase requirement for US Treasury securities.
5.
Zero coupon bonds issued by brokerages based on receipts for US Treasury instruments are known as ________.
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STRIPS. The others are examples of securities created prior to the STRIPS system by brokerages that stripped coupons from Treasury securities they bought and held in escrow.