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The theory where investors demand a premium or higher rate of return for securities with longer maturity times. This is due to the additional risk they take on when making long-horizon investments.
Market Segmentation Theory
The theory that investors have different investment goals, and, therefore, there is no necessary relationship between long and short-term interest rates.
The average of time-series data from multiple consecutive periods. It is considered a “moving” average because the average is constantly recalculated once new data becomes available for the next period.
The value of a security, such as a stock or bond, which remains fixed for the duration of its life.
The Sum of Squares Regression (SSR) measures how much variation there is in the modeled values and this is compared to the Total Sum of Squares (SST), which measures how much variation there is in the observed data, and to the Sum of Squares Residual (SSE), which measures the variation in the modeling errors.
International organizations or groups that operate beyond national boundaries. These groups share decision-making and look to work on issues regarding multiple countries. For example, the European Union is a supranational organization.
The concept that holds that a specific sum of money is more valuable the sooner it is received. Time value of money is dependent not only on the time interval being considered but also the rate of discount used in calculating current or future values.
A graph plotting interest rates of bonds with equal credit risk, at the same point in time, but with different maturity rates.
Yield to Maturity
The annual return earned by a bond investor if purchasing a bond today and holding it until maturity.
Zero Coupon Bond
As the name suggests, this is a bond that has no coupon payments. It is typically traded at a discount, so there is a profit when it is redeemed for face value at maturity.
More Fixed Income Resources
This fixed income glossary provided an overview of the most important bond terms that every financial analyst needs to know. To continue building your career as a world-class financial analyst, these additional resources will be helpful:
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