Interest Rate Risk and Return Flashcards
1
Q
What is “Horizon Yield”?
A
An investor’s total rate of return on a fixed income instrument over their holding period, including reinvested coupon payments.
It is an internal-rate-of-return expressed as an annualized rate.
2
Q
What is “Carrying Value”?
A
[For a fixed-income instrument]
It is the purchase price plus (minus) the amortized amount of the discount (premium) if the bond is purchased at a price below (above) par value.
3
Q
What is the “Macaulay Duration”?
A
The present-value weighted average time to receipt of cash flows for a fixed-income instrument.
4
Q
What is the “Duration Gap” ?
A
The difference between a bond’s Macaulay Duration and its investor’s investment horizon.
