We calculated the present value of STRC — it’s bad for MSTR

Headline, we calculated the present value of STRC,

it's bad for MSTR, published at 321 PM, March 19th, 2026.

When the net present value of stretch STRC, the dividend yielding preferred share

issued by strategy, formerly micro strategy, is calculated, it makes disappointing reading

for MSTR shareholders. Michael Sailor hopes that STRC will somehow fund trillions of dollars worth

of Bitcoin, BTC purchases for shareholders of his common stock. However, while STRC raises capital

that will mathematically create a positive BTC yield for MSTR, it's actually extraordinarily

expensive over the long term. Strategy advertises these immediate BTC purchases as the upfront

benefit of STRC to its MSTR common stockholders. It happily praises BTC yield, the extra quantity

of BTC that MSTR shareholders enjoy today, when strategy buys BTC from the cash it receives selling

STRC. STRC obviously improves the company's current balance sheet because it raises capital

today and throws all of its servicing costs into the future. Like any other capital raising activity,

strategy promises future benefits in exchange for capital today. Read more. Michael Sailor's spinal

tap ad says STRC is like a bank account. It isn't. The 11.5% dividend.

Despite STRC's morphing terms such as its variable interest rate and quasi-peg,

it's possible to estimate what STRC is worth today. Although no one has offered to buy out STRC

from strategy entirely, a theoretical calculation about what this asset is worth can illustrate its

actual value for common shareholders of the company rather than the misleading BTC yield metric

that ignores all of STRC's future obligations. Specifically, STRC pays 11.5% annualized dividends

in monthly cash installments. Although its dividend rate is variable and subject to suspension

at the discretion of the board of directors, a prospective buyer could use 11.5% as a rate for

calculation. Indeed, if STRC trades substantially below its $100 par value, also called its stated

amount. In the future, as it has in the past, the company might need to increase that percentage

further to encourage bids from Nasdaq traders. It could also lower that rate if STRC trades far

above its $100 stated amount. In essence, using the 11.5% dividend rate as is is a fair starting

point for calculations. The rate is the company's current choice and the market is pricing STRC based

on that dividend at this time. Worth while to compare STRC to a junk bond?

Assuming a bond portfolio buyer were interested in STRC, they might compare its dividend

interest rate to an average junk bond yield. Indeed, strategy itself has a junk b-credit

worthiness rating by S&P. Sailor has repeatedly compared STRC to a high yield bank account or

money market fund. Even though it has no deposit insurance, doesn't have any guarantees to maintain

principal value, doesn't pay any guaranteed interest rate, has no standing bids in the market

to support secondary trading at par, and has fluctuated in value by 9.8% over the last four months.

Still, many crypto investors have learned about high yield bonds for the first time by way of

STRC's retail focused advertisements, including various X ads and a spinal tap appropriation

that claim its dividends are somehow income that can stretch a typical three to 4% money market

interest rate payout to 11.5%. Even though STRC isn't a bond, its marketing promises are very

similar to a bond offer, emphasizing monthly payouts, an annualized interest rate, and a vague

insinuation that the principal of the investment might remain stable in value. It has vast documentation

about strategies attempts to pull financial levers if STRC trades too far above or below

its $100 par. Of course, a company paying 11.5% to raise capital is a red flag in itself.

Investment grade corporate bonds pay about 5%, even the most risky,

fall rated companies with creditworthiness just one step above junk status pay an average 6.1%.

An 11.5% rate is far higher than even junk bond rates, which average near 7%.

Indeed, the 7% average junk bond yield is a starting point for calculating and then

doubting one's calculations about the net present value of STRC in comparison to a junk bond portfolio.

With a massive 450 basis point credit spread above the average junk yield yet with no principal

repayment and no maturity date, STRC's 11.5% dividend is so high that it seems to be more like an

annuity than a bond, calculating STRC like an annuity. Anuities in contrast to bonds

can be structured to pay almost any annualized interest rate if the pay term is short enough.

Given annuity company $1 million and ask for a 10% simple interest for only 10 years

and they'll happily oblige. That is free money for the annuity company, paying back only the

principal while enjoying investment yields on the balance for a decade. Indeed, because STRC is a

choose your own adventure product by strategy which plucked the 11.5% dividend rate out of its

discretion, it's far more comparable to a custom annuity than a bond. There is, in addition,

a well-established and relatively liquid market for annuity settlements. Anuities settlements

provide a reference point for a one-time cash payout for an instrument that never repays its

principal or matures. Although STRC might theoretically pay dividends for centuries,

limiting its payouts to the lifetime of a human, like Sailor, is probably a more realistic

starting point than infinity. An annuity style cash settlement estimate of STRC would then have

to be compared against the value of another annuity paying the average yield of a junk bond,

that is 7%, and discounted against the value of the bond's principal repayment upon maturity.

Unlike bonds, classic income annuities don't typically repay principal at any date,

instead, like STRC, they irreversibly convert a principal capital into a payment stream over

the lifetime of the policy holder. What is a $5 billion annuity paying 11.5% worth?

If you plug a $5.025 million classic life-only annuity into an actuarial calculator paying 11.5% annually

until death of a 61-year-old US male policy holder, that is the same age as Sailor,

the likely cash settlement offer for a one-time buyout of this annuity ranges from an aggressively

low-balled 18% discount bid of $5.6 million to a more realistic fair market discount of 8% at $6.3 million.

Simply substitute the word million for billion above to translate that into the net present value

of STRC's $5.025 billion in notional outstanding. Of course, STRC isn't legally tied to anyone's

lifespan, and dividends can, in principle, run indefinitely or be cut earlier.

Using Sailor's life to cap the horizon is a simplifying assumption, not an inherent property of

STRC. Yes, this theoretical $5.025 million annuity immediately gains value in a cash settlement here,

because the generous 11.5% yield rate instantly accrues value in the secondary market,

for the obvious reason that such payouts are not generally available elsewhere from credit worthy

issuers. Discounts like 8% or 18% above are calculated based on the mathematical value of an annuity

defined by IRS publication 1457, also known as a section 7520 valuation. For a level-paying annuity

under section 7520, its present value calculates using a section 7520 rate and the appropriate mortality

table. In plain English, the net present value or the whole stream of future payments as valued

right now in today's dollars equals the dollar amount of each payment in the annuity multiplied

by an IRS defined annuity factor that provides the discount rate and mortality assumption based on

age and gender. The practical negotiating range is roughly $6 million, corresponding to the 5 to

10% discount rate band that dominates the annuity settlement's bids. A well-negotiated deal with

multiple competing bids could push closer to $7 million. Since the 11.5% interest rate is

exceptionally rich relative to current market rates and buyers would have a strong incentive to

compete. The fair value floor is actually above principle or above $6 million because 11.5% annual

cash yield against a 6 to 7% average cost of capital for an institutional buyer elsewhere

creates an immediate positive carry rate from day one. Any offer below $6 million would likely

be predatory at a discount rate exceeding 18% that would primarily benefit the buyer at an unreasonable

penalty to the seller. So, despite STRC's lack of any promise to repay principle, the discounted

net present value of its future cash flows at 11.5% during sailors' expected life expectancy

are probably worth something around $6 to $7 billion or above the full value of its 5.025

billion-dollar notion of face value outstanding. Again, when transposing figures from a realistic

annuity measured in the millions simply substitute the word billions to analogize to STRC.

Additional considerations

Of course, the buyer and seller in this hypothetical scenario could debate how much STRC's

dividend rate will vary because it is a variable rate after all. Moreover, they could debate whether

STRC will maintain its $100 par value on the secondary market that is on its NASDAQ listing.

If any buyer was somehow 100% confident that STRC would maintain its $100 par by the end of

sailors' lifetime, they might bid double that $5 million par or more, that is 10 to $12 billion

for the entire STRC product today. Of course, no one is actually bidding over $200 for STRC today

as it hugs its quasi-peg closely at $99 and 75 cents as of writing time.

Therefore, the market somewhat agrees with the annuities comparison above. However,

it discounts the comparison with little faith in the long-term ability of STRC to maintain its $100

quasi-peg. The discounted net-present value of STRC's future cash flows, if it were to actually pay

11.5% annualized dividends over the course of sailors' lifetime, is actually worth at least $1

billion more than its $5.025 billion face value. If the bidder had confidence that STRC would still

hold its par value on the NASDAQ by the end of sailors' life, it should be worth more than double

the current $100 share price. So how exactly does strategy expect a product that's worth so much

less than the cash settlement value of its comparable peer and annuity to make up for that

lack of confidence while also making good on all of those future payouts? The market has spoken,

giving STRC no more value today at its $5.012 billion market capitalization than its $5.024

billion face value on which it raised money to buy BTC. The only way this works is if BTC rallies.

A lot. For the STRC trade to work for strategy, BTC has to rally much more than 11.5% annually.

If only BTC were to rally 30% a year, it would pay for everything.

As usual, STRC's lavishly generous dividend of 11.5% only makes sense if BTC appreciates far

above that rate. It could, for example, rally along the lines of sailors' hyper bullish forecast

of 30% per year. Obviously, selling something paying 11.5% to buy something appreciating 30%

is a no-brainer, as long as that thing actually appreciates 30% annually.

Unfortunately, for the last five years, BTC definitely hasn't rallied anywhere close to 30%

per year. Instead, it's only rallied 30% in five years. In sailors' mind, BTC will soon make

up for those shortcomings. It better. All of STRC's BTC acquiring efforts have lost money on average,

so Sailor needs BTC to rally desperately. The company's average cost basis is $75,696,

or 5% higher than BTC was trading today. In summary, the result of both an annuities-style cash

settlement value valuation of STRC as well as the real market capitalization of STRC,

both aligned with a value at or above STRC's face value on which it raised money to buy BTC

$5 billion. However, because STRC is actually trading at a market cap equal to its face value,

the market is giving strategy shareholders no more benefit today for STRC than the initial capital

that it has raised over the last year to buy BTC. There might be BTC yield per share of

MSTR, but MSTR isn't enjoying any benefit from STRC as measured in USD.

Worse, the company has to pay dividends to STRC indefinitely, even though the market is giving

STRC no benefit above par for that promise today. Those future obligations will drag on the company's

profitability and cash flows for years to come. This audio is AI-generated. Got a tip?

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