Talk:Strip bonds

Reader feedback: A judgement is being made to...

75.159.80.163 posted this comment on 25 January 2014 (view all feedback).

A judgement is being made to say that "Stripped bonds should not be held in taxable accounts because tax is due on the imputed interest every year...". Suggest instead: "Investors need to be aware that stripped bonds held in taxable accounts will be subject to tax on the imputed interest every year.."

Any thoughts?

Peculiar Investor 05:35, 27 January 2014 (MST)

Feedback from James Hymas

I suggest that the "How strip bonds work" section of the captioned page, paragraph 2, sentence 3 is insufficiently precise - it states:

Because they have no coupons and no cash flow is obtained until the strip matures, strip bonds have a duration equal to their term to maturity.

However, the article cited, https://www.bankofcanada.ca/wp-content/uploads/2010/06/r971c.pdf , does not entirely support this statement. While the Macaulay Duration of a strip bond is equal to its term, the Modified Duration is less (except when the yield is zero!)  As the paper states (page 16 of the PDF, page 62 of the document):

The Macaulay duration of a zero-coupon bond is always equal to its maturity

BUT, Modified Duration is equal to Macaulay Duration / (1 + y/2)

[The BoC paper shows this, but not explicitly. It's made explicit at https://analystprep.com/cfa-level-1-exam/fixed-income/macaulay-modified-effective-durations and many other places]

In search of a more authoritative statement of the formula at issue than offered by a randomly chosen exam prep service, I looked at the page

https://www.finiki.org/wiki/Conventional_bonds#Bond_duration

and found the section in question sadly imprecise, while I found the third paragraph to be incomprehensible. I think this section is trying to describe Immunization, but frankly it's not entirely clear and, to the extent I understand what it's trying to say, is simply wrong.

So:

Can you fix this? Or publicize it so somebody else can fix it? Peculiar Investor 13:43, 17 September 2025 (EDT)

This is beyond my area of expertise, but I can offer the Bogleheads wiki Duration page to help. LadyGeek 16:42, 17 September 2025 (EDT)