WHAT ARE STRIPS ?
STRIPS : Separate Trading of Registered Interest and Principal of Securities (STRIPS),
- STRIPS involve splitting a standard coupon-bearing government bond into its individual cash flows—each interest payment and the principal repayment.
- These separated components are then traded as zero-coupon instruments.
- For instance, a 10-year State Government bond with annual interest payments can be stripped into 11 components (10 interest payments + 1 principal repayment).
- Each component is a zero-coupon bond with a defined maturity and is traded separately in the market.
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