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Comment by cesarb

With a 10-year bond, the investor receives that interest rate over the whole 10 years. With a 6-month bond, the investor receives that interest rate only over these 6 months, and then has to find another bond to buy. If all available bonds then have a lower interest rate, the investor would have received more for the 10-year bond.

(What might be confusing at first is that interest rates are usually "annualized", that is, presented as if they were for a single whole year. You won't actually receive 2.49% of what you paid for the 6-month bond; you'll receive something like 1.24%, and you have to invest again for another 6 months to reach that 2.49%. If that investment is no longer available, you might not be able to do that.)

parent cesarb 7 years ago

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