Explain how a bond ladder is built, what it offers and where it falls short, and describe its risk and return profile

A ladder spreads money roughly evenly across maturities, say one to ten years, and as each rung matures the proceeds are reinvested at the longest rung. This diversifies reinvestment and interest rate risk over time, provides regular liquidity from maturing bonds, and gives more convexity than a bullet of equal duration. The portfolio's return tends toward an average of rates across the cycle, and its duration sits near the middle of the range. Limitations: it does not match any specific liability, callable or amortising bonds can distort the rungs, and in a steep curve it gives up yield compared with holding only long bonds. A trap is assuming a ladder removes interest rate risk; it only spreads it.