Stripped bonds are bonds whose cash flows have been transformed into a security representing the principal payment only and a security representing interest payments only.

Question

Quizplus · Accepted Answer

Stripped bonds are indeed bonds that have been separated into two parts: one part representing the principal payment (often referred to as the "principal-only" strip) and another part representing the interest payments (referred to as the "interest-only" strip), allowing investors to choose between the two types of cash flows according to their investment needs or expectations.

Stripped Bonds Are Bonds Whose Cash Flows Have Been Transformed