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Bonds 206: STRIPS

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1.
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.
2.
STRIPS are sold by the US Treasury.
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False. While backed by receipts for US Treasury securities, the STRIPS themselves are created and sold by brokerage firms.
3.
Any US Treasury security is eligible for STRIPS.
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False. Only Treasury securities with maturities of 10 years or longer are eligible for STRIPS.
4.
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.
5.
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.