STRIPS & TIPS Josh McBee. STRIPS – Separate Trading of Registered Interest and Principles of...
-
Upload
harry-malcolm-hensley -
Category
Documents
-
view
216 -
download
0
Transcript of STRIPS & TIPS Josh McBee. STRIPS – Separate Trading of Registered Interest and Principles of...
![Page 1: STRIPS & TIPS Josh McBee. STRIPS – Separate Trading of Registered Interest and Principles of Securities.](https://reader035.fdocuments.us/reader035/viewer/2022062722/56649f335503460f94c4f767/html5/thumbnails/1.jpg)
STRIPS & TIPSJosh McBee
![Page 2: STRIPS & TIPS Josh McBee. STRIPS – Separate Trading of Registered Interest and Principles of Securities.](https://reader035.fdocuments.us/reader035/viewer/2022062722/56649f335503460f94c4f767/html5/thumbnails/2.jpg)
STRIPS – Separate Trading of Registered Interest and Principles of Securities
![Page 3: STRIPS & TIPS Josh McBee. STRIPS – Separate Trading of Registered Interest and Principles of Securities.](https://reader035.fdocuments.us/reader035/viewer/2022062722/56649f335503460f94c4f767/html5/thumbnails/3.jpg)
Bond
Interest Interest Interest Interest Interest Interest Principal
$60$60$60$60$60$60$1000
Type PMT
SOLDSOLDSOLDSOLDSOLDSOLDSOLD
Separate and Sell Individually
![Page 4: STRIPS & TIPS Josh McBee. STRIPS – Separate Trading of Registered Interest and Principles of Securities.](https://reader035.fdocuments.us/reader035/viewer/2022062722/56649f335503460f94c4f767/html5/thumbnails/4.jpg)
Bond PricingEx: 3yr semi-annual bond at 12%; YTM = 8%
Bond Ex: 3yr semi-annual bond at 12%; YTM = 8%
Period Calculation PV
1 $60 x 1/(1.04) = $57.69
2 $60 x 1/(1.04)^2 = $55.47
3 $60 x 1/(1.04)^3 = $53.33
4 $60 x 1/(1.04)^4 = $51.28
5 $60 x 1/(1.04)^5 = $49.31
6 $1060 x 1/(1.04)^6 = $837.73
Price = $1,104.81
![Page 5: STRIPS & TIPS Josh McBee. STRIPS – Separate Trading of Registered Interest and Principles of Securities.](https://reader035.fdocuments.us/reader035/viewer/2022062722/56649f335503460f94c4f767/html5/thumbnails/5.jpg)
Stripped BondEx: 3yr semi-annual bond at 12%; YTM = 8%
Period Calculation PV
1 $60 x 1/(1+y) =
2 $60 x 1/(1+y)^2 =
3 $60 x 1/(1+y)^3 =
4 $60 x 1/(1+y)^4 =
5 $60 x 1/(1+y)^5 =
6 $1060 x 1/(1+y)^6 =
Price =
![Page 6: STRIPS & TIPS Josh McBee. STRIPS – Separate Trading of Registered Interest and Principles of Securities.](https://reader035.fdocuments.us/reader035/viewer/2022062722/56649f335503460f94c4f767/html5/thumbnails/6.jpg)
Stripped Bond Cont.Ex: 3yr semi-annual bond at 12%; YTM = 8%
Period Calculation PV
1 $60 x 1/(1.015) = $59.11
2 $60 x 1/(1.025)^2 = $57.11
3 $60 x 1/(1.0325)^3 = $54.51
4 $60 x 1/(1.03625)^4 = $52.04
5 $60 x 1/(1.03875)^5 = $49.61
6 $1060 x 1/(1.04)^6 = $837.73
Price = $1,146.11
![Page 7: STRIPS & TIPS Josh McBee. STRIPS – Separate Trading of Registered Interest and Principles of Securities.](https://reader035.fdocuments.us/reader035/viewer/2022062722/56649f335503460f94c4f767/html5/thumbnails/7.jpg)
YTM and Profits
• Bought Bond for $1,104.81• Sold for $1,146.11• Profit of $41.30
1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 60
2
4
6
8
10
YieldYTM
Period
Yie
ld %
![Page 8: STRIPS & TIPS Josh McBee. STRIPS – Separate Trading of Registered Interest and Principles of Securities.](https://reader035.fdocuments.us/reader035/viewer/2022062722/56649f335503460f94c4f767/html5/thumbnails/8.jpg)
CUSIP ID
ID TYPE Period
CUSIP Interest 1
CUSIP Interest 2
CUSIP Interest 3
CUSIP Interest 4
CUSIP Interest 5
CUSIP Interest 6
CUSIP Principal 6
![Page 9: STRIPS & TIPS Josh McBee. STRIPS – Separate Trading of Registered Interest and Principles of Securities.](https://reader035.fdocuments.us/reader035/viewer/2022062722/56649f335503460f94c4f767/html5/thumbnails/9.jpg)
TIPS – Treasury Inflation Protected Security
![Page 10: STRIPS & TIPS Josh McBee. STRIPS – Separate Trading of Registered Interest and Principles of Securities.](https://reader035.fdocuments.us/reader035/viewer/2022062722/56649f335503460f94c4f767/html5/thumbnails/10.jpg)
TIPSEx: 6yr annual bond at 6%; Principal = $1000
Period PMT Inflation Rate Adj. Principal
1 $60.30 0.5% $1005
2 $61.14 1.4% $1019.07
3 $62.98 3% $1049.64
4 $63.73 1.2% $1062.24
5 $63.93 0.3% $1065.43
6 $1141.78 1.1% $1077.15
![Page 11: STRIPS & TIPS Josh McBee. STRIPS – Separate Trading of Registered Interest and Principles of Securities.](https://reader035.fdocuments.us/reader035/viewer/2022062722/56649f335503460f94c4f767/html5/thumbnails/11.jpg)
0 2 4 6 8 10 12$1,000.00
$1,100.00
$1,200.00
$1,300.00
$1,400.00
$1,500.00
$1,600.00
$1,700.00
Adj. Principal @ 1%Adj. Principal @ 3%Adj. Principal @ 5%
Years
Ad
j. P
rin
cip
al
![Page 12: STRIPS & TIPS Josh McBee. STRIPS – Separate Trading of Registered Interest and Principles of Securities.](https://reader035.fdocuments.us/reader035/viewer/2022062722/56649f335503460f94c4f767/html5/thumbnails/12.jpg)
References
• Treasury Strips: http://www.bondtrac.com/professional/information/education/TreasuryStrips.xml
• New York Fed: http://www.newyorkfed.org/aboutthefed/fedpoint/fed42.html• FINRA org:
http://www.finra.org/Investors/InvestmentChoices/Bonds/SmartBondInvesting/typesofbonds/P133240
• More on STRIPS: http://www.investinganswers.com/financial-dictionary/bonds/separate-trading-registered-interest-and-principal-securities-strips-905
• TIPS Example: http://www.investinginbonds.com/learnmore.asp?catid=9&subcatid=51&id=253
![Page 13: STRIPS & TIPS Josh McBee. STRIPS – Separate Trading of Registered Interest and Principles of Securities.](https://reader035.fdocuments.us/reader035/viewer/2022062722/56649f335503460f94c4f767/html5/thumbnails/13.jpg)
Questions