Interim cash flows

Income earned from reinvestment of the bond s interim cash flows (i.e., coupon payments and principal repayments). 

The source of dollar return called reinvestment income represents the interest earned from reinvesting the bond s interim cash flows (interest and/or principal payments) until the bond is removed from the investor s portfolio. With the exception of zero-coupon bonds, fixed income securities deliver coupon payments that can be reinvested. Moreover, amortizing securities (e.g., mortgage-backed and asset-backed securities) make periodic principal repayments which can also be invested. 

The difficulty in calculating a bond s return is that its future value is not known with certainty, because it depends on the rates at which the interim cash flows can be reinvested, and these rates cannot be predicted. A number of approaches have been proposed that get around this. These are described in the following paragraphs, assuming simple interest rate environments. 

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See also in sourсe #XX -- [ ]

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