 In this section, we are going to talk about the relationship between interest rate, financial returns and years to maturity. Although these three concepts are different from each other, but they are linked up with one another very closely. So it is important to understand the relationship that exists among these three variables. So in order to explain the relationship among these three variables, I'm going to show you a table in which we have taken into account different bonds with different maturity period. Maturity period means that the bond can have a maturity period of one year or two years or five years or 10 years or 20 years or 30 years. That means that they are going to offer you a certain coupon rate on a certain financial instrument for this much number of years, which is given as the time to maturity. And upon the maturity, they will return the initial investment that has been invested by the investor along with if there is some sort of other additional values of earnings that have been incurred by that particular financial instrument. So when we look at this table in the first column, the various maturity time periods of multiple types of bonds are enlisted. Second column, you can see that, we assume that our initial current yield is 10%. There are different maturity periods, but the initial yield that is fixed and that is given as 10%. After that, we saw in the third column that all the bonds or financial instruments that are in the initial price of the market are $1,000. And when we look at it after going through one year, what is the shortage and loss in their value? So in column 4, you can see some prices. These prices have been calculated using the formula of price of coupon bond. We have already discussed this particular formula previously, that the price of a coupon bond which will come in the maturity over a specific time period, how to determine its price and you will remember that we had accounted for the discount factor and we had included a series of different terms and discussed a formula. So we have used this formula to calculate the price of the next year time period. After that, in column number 5, you can see the rate of capital gain. So we have already discussed how capital gain comes out. Capital gain is basically the difference between the current price and the previous time periods price divided by the previous time periods price or initial price which you have. In this example, if you look at it, the price next year is $503 minus $1,000 and then you have divided it by the initial price. So you have the rate of capital gain. If we look at the total rate of return which is basically the sum of the current yield plus the rate of capital gain. So what have you done for that? We have gathered column number 2 and column number 5 to get the total rate of return which is given in column number 6. So here you can see that we assumed that in the first year, your interest rate is 10%. But in the next year, until the end of the year, the interest rate increased by 10 to 20%. By doing this, what happened was that all the financial instruments whose maturity is more than a year in time period, the demand for all those financial instruments or coupon bonds has fallen. Why? Because the bank is offering you 20% interest rather than 10%. So for you, after 30 years of financial instruments, or after 20 years of financial instruments, you don't feel so attractive by going beyond the interest rate. So what happened by doing this? In the financial market, all the financial instruments or bonds whose maturity is more than a year in time period, all the prices have fallen. And by doing this, you can see that the rate of return in which we play an important role in capital gain, it has an important role and when the price falls, the effect of capital gain will come. And when we look at the rate of return, we can see that the maturity of the instrument was of 1 year, its rate of return is still positive, it is only 10%. But all the financial instruments or coupon bonds which are shown in this example, if the maturity time period is more than a year, then the rate of return has fallen. And the more time to maturity is left, the greater the fall is. So you can see that on the maturity of 1 year, you can see the 10% rate of return, which is equivalent to the initial current yield. You have to remember this. And when we see that the maturity time period is more than the maturity time period in the financial instruments that are matured, the rate of return is showing a lot of negative changes. And as we can see that in 30 years, the rate of return of a matured financial instrument has fallen the most, and it is now showing minus 39.7%. And the reason behind this is that in the market, the interest rate is 20% instead of 10%. And because of this, the investor is now seeing the advantage that they put their money in the bank. And by doing this, the investment that they have invested in bonds, they will take out the money from there. When they take out the money from it, then the excess supply will be in the financial market of the bond. And when the excess supply will be there, then its price will fall. And we calculate the price of return and account for it. Therefore, when the price will fall, the rate of return will fall. So we can see that on 20 years, your rate of return has become minus 38.4%. On 10 years, it is minus 30.3%. On 5 years, it is still negative, which is minus 15.9%. But one important thing that you can see here is that the more the maturity of a financial instrument's time period, the greater the fall on the rate of return. But if your maturity time period and your holding time period is as much as you have held that financial instrument with you, if both are equal in maturity time period, then for such a financial instrument, your current yield is equal to your rate of return, which can be seen in the last row. We have taken such a financial instrument in the last row, whose year is to maturity one, its initial current yield is 10%. And its rate of return, the interest rate has increased from 10% to 20%. But its rate of return is only 10%. And that change will not happen, you will only get 10%. And it is always, always equal to the initial current yield. So the more the maturity of a financial instrument's time period, the more your rate of return will fall given that your interest rate has increased in the market. And now people can see more benefit that they sell the bonds and take out the investment from the bonds and put it in the bank so that they can benefit more. So from this table, we have learnt three things. The first one is that when the interest rate increases, there is always a fall in the bond prices. As I just told you that by increasing the interest rate, you get to see more benefit that you do not invest in the bond. And the second thing we learnt is that when the interest rate falls, the bond prices will increase. And the third important thing that we learnt from this is that if you are seeing capital losses by increasing the interest rate, then the capital losses will be as much as your financial instrument will have more time to mature. So the more the maturity time period is remaining, the more capital loss will be. And another important thing which we can derive from this particular discussion is that the higher the price change, the greater the interest rate change associated with it. We have seen that the interest rate is 20% from 10%. Which is a big change. So the price falls and the fall also comes from the same big proportion. So the proportion with which the interest rate changes is somewhat, it influences the proportion with which the price changes and they too will move in opposite directions. Next, even if the initial interest rate is quite high, if you are starting out with a good lucrative financial instrument, but with this kind of interest rate fluctuation, it can be a possibility that your very high positive return will be negative by increasing the interest rate. So we have to keep watching how our market's fluctuations should consider our investment decision making that the fluctuations in the market, in macroeconomic variables like in the interest rate, make the decisions of our investment much more effective. So we need to understand what is the exact nature of relationship among these three important factors which we have just discussed in this particular session.