Treasury Investors Growth Receipt (TIGER): Zero Coupon Government Security

Treasury Investors Growth Receipts, commonly known as TIGERs (or TIGRs), are a form of zero-coupon securities. These are U.S. government-backed bonds that have been stripped of their coupons. Unlike traditional bonds that provide periodic interest payments, the principal (referred to as the corpus) and individual coupons of TIGERs are sold separately at a significant discount from their face values. Upon maturity, investors receive the full face value of the TIGERs but do not get periodic interest payments.

Zero-Coupon Feature

TIGERs are defined by their zero-coupon nature. This means they are sold at a deep discount relative to their face value and do not offer periodic interest payments during their lifetime. Upon maturity, the investor receives the face value, compensating for the absence of periodic interest with an overall larger lump sum.

Discounted Purchase

These securities are bought at prices much lower than their maturity value. For instance, a TIGER with a face value of $1,000 might be purchased for $700. The difference between the purchase price and the face value represents the interest income, accruing over the life of the bond.

Where:

• \( P \) is the purchase price of the bond
• \( F \) is the face (maturity) value
• \( r \) is the annual interest rate
• \( n \) is the number of compounding periods per year
• \( t \) is the number of years until maturity

Investing in TIGERs

Investors interested in TIGERs are typically seeking a long-term investment with a guaranteed return at maturity. These securities are ideal for individuals who prefer a lump sum payment rather than regular income.

Example

Consider an investor purchasing a TIGER with a face value of $10,000 at a price of $6,500. Over a period (say 10 years), the investor will receive the face value of $10,000, realizing a profit of $3,500.

STRIPS

The U.S. Treasury also offers STRIPS (Separate Trading of Registered Interest and Principal Securities), which serve a similar purpose as TIGERs. STRIPS are also zero-coupon bonds, differing primarily in their direct issuance by the U.S. Treasury, whereas TIGERs were initially facilitated by financial institutions.

Related Terms

• Coupon: The interest payment made to bondholders, typically on a semiannual basis. Not applicable to TIGERs.
• Corpus: The principal part of a bond that is repaid at maturity, separate from the periodic interest (coupon) payments.

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