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|Subject: More STRIPs and TINTs||Date: 10/4/2012 3:26 PM|
|Author: pauleckler||Number: 34448 of 35527|
I calculate that a $1000 face value STRIP based on a 20 yr Treasury paying 2.4% semiannually, should sell for $628.
The corresponding TINT should sell for $1000-628 or $372. That gives access to a nice income stream of 40 payments of $12 each, for an apparent yield of 6.45%.
However, there is no return of principal after the 40 payments. Hence, 1/40 of that $372 or $9.30 of each payment is return of principal.
If you set it up as a mortgage, where each payment reduces principal until payment no 40 takes it to zero, the yield on payment no 21 (the median payment) is 2.90%.
So a TINT is a high yield govt backed security paying a premium of about 20% over market rates or abt 0.5% more.
All these calculations are theoretical and include no fees for the derivative maker or broker/dealer fees.
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