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Finance allah shmoop What are strips Well they're just government

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back zero coupon bonds They pay no interest along the

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way And then at the very end after being sold

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at a meaningful discount to par well they pay far

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and everyone goes away Happy ish All right well strips

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stands for separate trading Registered interest principle of securities strips

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Yeah and not nearly as exciting as you were hoping

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right Well strips became a thing in nineteen eighty five

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as the government zero coupon vehicle of choice Replacing older

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forms of money raising The basic idea was to feed

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and ever more complex hunger among investors wanting different flavors

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of debt food and stripping principle in various forms Help

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to at least partially feed that beast well in this

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case the coupons can be stripped from the principle So

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in the case of say fifteen year paper there are

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thirty one elements of payment or thirty one payments to

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be made where thirty of them are coupons or semi

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annual interest payments And those can be packaged as one

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suite of a product And then there is a final

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payment of principle That's the thirty first flavor there you

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know like baskin robbins you know investors can buy them

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separately or combined as it suits their needs And you

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can imagine having just bought a building which carries a

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tax deductible interest costs via debt procured to buy it

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That interest cost to the company's in one hundred grand

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a month Well in order to defeat ease that interest

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costs five dollar word there The company might also by

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strips where they're just buying the coupons from it for

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an offering that pace a four hundred grand twice a

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year in stripped coupons Well that way eight hundred thousand

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boxes with one point two million owed in those monthly

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pay payments on the building are defused and the company

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only has to stress about the remaining four hundred grand

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to cover their brand spanking new building interest costs Well

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at the other end of the liquidity spectrum a company

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might not need any cash for fifteen years and they're

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happy just getting very safe Us government backed interest in

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buying the principal at a discount and then fifteen years

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later cashing in getting the cash getting back to par

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Well either way it's Nice to have a little bit

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Of cash left at the end of the day Especially

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if you're planning to stop by the zero coupon bondage

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parlor That's A different kind of stripping But we didn't

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go there because we're just doing fifty shades of shmoop 00:02:20.83 --> [endTime] here A while

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