Interest-On-Interest Component

Interest-On-Interest Component - Interest-On-Interest Component is the portion of a stock certificate security's total returns that result from the stockholder reinvesting of the income generated by that stock certificate security. In the case of bonds, it refers to the stockholders reinvestment of the coupon interest received until the original bond matures. In the case of amortizing stock certificate securities, such as mortgage-backed securities, it comprises of the interest plus the period repayment of the principle before the maturity. During periods of high interest rates, this one component is for long-term bonds can be seventy percent to eighty percent of the bonds total return.