What are Interest Rate Securities?
An Interest Rate Security is simply a security that pays a fixed or floating rate of return. This return can be in the form of interest or dividends.
The Issuer usually promises to pay you a specified rate of interest (a coupon) during the life of the Interest Rate Security and to repay the face value (issue price or the principal) of the Interest Rate Security at a predefined time (maturity date).
Characteristics of Interest Rate Securities
An Interest Rate Security has the following characteristics:
- issuer (the borrower);
- face value (repayment amount);
- coupon (the income stream);
- coupon frequency (the payment of the income stream);
- yield (return on investment);
- maturity date (expiry date);
- purchase price (cost of investment); and
- accrued interest
- bonds
- floating-rate notes
- convertible notes
- hybrid debt securities
- Collateralised Debt Obligations - CDOs
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