Business and Personal Finance Dictionary

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• STRIPS
  
  Principal and interest cash flows due from any interest-bearing securities can be separated into different financial instruments. This is done by stripping each coupon payment from the underlying investment to create a separate security. For example, a 5-year note can be separated into 11 pieces: 10 semiannual coupon payments and the final principal payment. Each of these 11 pieces is a separate cash flow that can be purchased or sold just like a Treasury bill. The cash flows are sold at a discount. The amount of the discount and the time until the cash flow is paid determine the investor's return.
  
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