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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35387  
Subject: More STRIPs and TINTs Date: 10/4/2012 3:26 PM
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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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