Stripped Yield

Posted in Finance, Accounting and Economics Terms, Total Reads: 467
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Definition: Stripped Yield

It is a measure of the independent, non- collateralized return of a warrant or bond after all the monetary incentives and features have been detached. Stripped yields processes the return on solitary the debt portion of a bond/warrant. By eliminating additional features, investors can view significant comparisons between convertible and non-convertible securities and debt instruments.

 

For example, by eliminating the built-in interest features and principal guarantees existing in old Brady bonds, investors were able to instantly understand the underlying risk of the issue.

 

Calculating the stripped yield is also useful in measuring many of today's debt securities, which feature embedded call options, "stepped" (increasing) coupons and the like.

 

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