1. STRIPS & TIPS Josh McBee

2. STRIPS – Separate Trading of Registered Interest and Principles of Securities

3. Bond  Interest  Principal $60 $1000 Type PMT SOLD Separate and Sell Individually

4. Bond Pricing Ex: 3yr semi-annual bond at 12%; YTM = 8% Bond Ex: 3yr semi-annual bond at 12%; YTM = 8% PeriodCalculationPV 1$60 x 1/(1.04) =$57.69 2$60 x 1/(1.04)^2 =$55.47 3$60 x 1/(1.04)^3 =$53.33 4$60 x 1/(1.04)^4 =$51.28 5$60 x 1/(1.04)^5 =$49.31 6$1060 x 1/(1.04)^6 =$837.73 Price =$1,104.81

5. Stripped Bond Ex: 3yr semi-annual bond at 12%; YTM = 8% PeriodCalculationPV 1$60 x 1/(1+y) = 2$60 x 1/(1+y)^2 = 3$60 x 1/(1+y)^3 = 4$60 x 1/(1+y)^4 = 5$60 x 1/(1+y)^5 = 6$1060 x 1/(1+y)^6 = Price =

6. Stripped Bond Cont. Ex: 3yr semi-annual bond at 12%; YTM = 8% PeriodCalculationPV 1$60 x 1/(1.015) =$59.11 2$60 x 1/(1.025)^2 =$57.11 3$60 x 1/(1.0325)^3 =$54.51 4$60 x 1/(1.03625)^4 =$52.04 5$60 x 1/(1.03875)^5 =$49.61 6$1060 x 1/(1.04)^6 =$837.73 Price =$1,146.11

7. YTM and Profits Bought Bond for $1,104.81 Sold for $1,146.11 Profit of $41.30

8. CUSIP ID IDTYPEPeriod CUSIPInterest1 CUSIPInterest2 CUSIPInterest3 CUSIPInterest4 CUSIPInterest5 CUSIPInterest6 CUSIPPrincipal6

9. TIPS – Treasury Inflation Protected Security

10. TIPS Ex: 6yr annual bond at 6%; Principal = $1000 PeriodPMTInflation RateAdj. Principal 1$60.300.5%$1005 2$61.141.4%$1019.07 3$62.983%$1049.64 4$63.731.2%$1062.24 5$63.930.3%$1065.43 6$1141.781.1%$1077.15

12. References Treasury Strips: http://www.bondtrac.com/professional/information/education/TreasurySt rips.xml http://www.bondtrac.com/professional/information/education/TreasurySt rips.xml New York Fed: http://www.newyorkfed.org/aboutthefed/fedpoint/fed42.html http://www.newyorkfed.org/aboutthefed/fedpoint/fed42.html FINRA org: http://www.finra.org/Investors/InvestmentChoices/Bonds/SmartBondInv esting/typesofbonds/P133240 http://www.finra.org/Investors/InvestmentChoices/Bonds/SmartBondInv esting/typesofbonds/P133240 More on STRIPS: http://www.investinganswers.com/financial- dictionary/bonds/separate-trading-registered-interest-and-principal- securities-strips-905http://www.investinganswers.com/financial- dictionary/bonds/separate-trading-registered-interest-and-principal- securities-strips-905 TIPS Example: http://www.investinginbonds.com/learnmore.asp?catid=9&subcatid=51& id=253 http://www.investinginbonds.com/learnmore.asp?catid=9&subcatid=51& id=253

13. Questions