Flip-Flop Note


DEFINITION of 'Flip-Flop Note'

A type of fixed-income security that allows its holder to choose a payment stream from two different sources of debt. Flip-flop notes provide investors with two options of return, allowing them to choose the underlying debt with the higher yield for the period.

BREAKING DOWN 'Flip-Flop Note'

For example, a typical flip-flop note could be comprised of a fixed-rated debt and a floating-coupon bond. If the floating interest rate drops below the fixed coupon, the investor can choose to receive income from the fixed-rate debt. Inversely, when the floating rate exceeds the fixed coupon, the investor would switch to the floating-rate debt for income. In this situation, the flip-flop note is similar to a floating-rate bond with an interest rate floor.

  1. Coupon

    The annual interest rate paid on a bond, expressed as a percentage ...
  2. Floating Interest Rate

    An interest rate that is allowed to move up and down with the ...
  3. Interest Rate Floor

    An over-the-counter investment instrument that protects the floor ...
  4. Underlying

    1. In derivatives, the security that must be delivered when a ...
  5. Fixed Interest Rate

    An interest rate on a liability, such as a loan or mortgage, ...
  6. Yield

    The income return on an investment. This refers to the interest ...
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