Bond Strips - CA Final SFM - Strategic Financial Management
1. CA Nikhil Jobanputra
189
Bond Valuation
Bonds STRIPS
STRIPS is an acronym for Separate Trading of Registered Interest and Principal of
Securities.
The present value of cash flows from a bond can be divided into two categories:
1. Present Value of Interest (Interest Strip)
2. Present Value of Redemption Price (Principal Strip)
The investor has option to buy or sell the Interest Strip and Principal Strip separately.
Therefore, the value of the bonds at present can be split into Interest Strip and
Principal Strip and sold to or issued to two different investors, 1 buying the interest
strip and another buying principal strip.