interest-on-interest component

Definition

Portion of a security's total returns that results from the reinvestment of the income generated by that security. In case of bonds, it refers to the reinvestment of the coupon interest received until the bond matures. In case of amortizing securities (such as mortgage-backed securities) it comprises of the interest plus the periodic repayment of the principle before maturity. During periods of high interest rates, this component for long-term bonds can be 70 percent to 80 percent of the bond's total return. also called reinvestment income.
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interesting interest-only loan