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That’s one heck of a vig. to pay.

It's not that bad if you consider the time factor. Ever hear of zero-coupon bonds? You might not have, because they've faded from view, but they were fashionable in the 1980s. Sometimes, they were promoted as the perfect investment for an IRA.

Essentially, a zero-coupon bond is a bond whose coupons (interest payments) are stripped off and sold elsewhere. What's left is the principal payment on maturity. You can take a 30-year Treasury bond and make it into a "zero" by splitting the interest payments from the bond itself and assigning them elsewhere. Zero chop shops sold the coupons to different clients.

Since these bond pay nothing - nada - until the maturity date, they sell at a huge discount to the payoff at maturity. In essence, the huge discount is compensation for the nada you get over the life of the bond.

Back in the mid and late-1980s, you could still get 8% on long-term Treasuries. A twenty-five year zero would pay nothing over the life of the bond, except at the end. To yield 8%, a $1,000 twenty-five-year zero-coupon bond would have to be sold for only $146.

That's how the math works. In order to yield 8%, that zero has to be sold at about 1/7th of face value. The huge payout at the end is compensation for being locked out of any payment for the entire twenty-five years: for getting nothing until the big payday.

A "capital appreciation bond" is a zero-coupon bond. From that article, I inferred that one of them had a wait period of forty years (!) No joke: a forty-year CAP that pays off $15 per dollar of original loan yields a wee bit more than 7%. Seven percent per year: that's how the compound-interest math works out.

So the vig looks huge only because it's pushed back into a lump sum at the end.

(I found that, when some dealie seems outrageous, that it's best to imagine I'm on the other side of the transaction...)