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When each coupon payment and the redemption value of bond are detached and are issued as separate and independent instruments are called

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UGC NET Paper 2: Management 4th Dec 2019 Shift 2
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  1. Coupons
  2. Strips
  3. Certificates
  4. Warrants

Answer (Detailed Solution Below)

Option 2 : Strips
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Key Points

 STRIPS

  • STRIPS states for Separate Trading of Registered Interest and Principal Securities.
  • "Stripping is the process of separating a standard coupon-bearing bond into its individual coupon and principal components" stated RBI.
  • in Strips, principal instruments and interest payments are removed or detached and sold separately in the market.

Hence, when each coupon payment and the redemption value of bond are detached and are issued as separate and independent instruments are called Strips.

Additional InformationCoupons

  • The annual interest rate which is paid on a bond.
  • is expressed as a percentage of the face value and is paid in the time period of the issue to maturity.

Certificates

  • it is a document that evidences the holding of security by the owner.

Warrants

  • A warrant is a financial product that investors buy from companies.
  • It gives them the right to buy or sell the company's stock at a predetermined price before the expiry date of said instrument.
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