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Inflation Premium |
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Inflation Premium The higher return that investors demand in exchange for investing in a long-term security where inflation has a greater potential to reduce the real return. The inflation premium is the reason that most yield curves trend upward. Thus, a bond with a maturity of 30 years almost always has a higher coupon rate than one with a maturity of 30 days. Investors expect to make a larger nominal return in part to compensate them for the lower real return that is almost inevitable because of the nature of inflation. See also: inflation risk.
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