maturity date

Accounting

(noun)

the date on which a principal amount of a note, draft, acceptance bond, or other debt instrument becomes due or payable

Related Terms

Business

(noun)

the time of the final payment of a loan or other financial instrument, at which point the principal (and all remaining interest) is due to be paid

Related Terms

Examples of maturity date in the following topics:

  • Maturity Date

    • Maturity date refers to the final payment date of a loan or other financial instrument.
    • The issuer has to repay the nominal amount on the maturity date.
    • The length of time until the maturity date is often referred to as the term or tenor or maturity of a bond.
    • In this case, the maturity date is the day when the bond is called.
    • Similarly, the maturity date, if applicable, is the date as the bond is redeemed.

  • Characteristics of Bonds

    • The issuer has to repay the nominal amount on the maturity date.
    • As long as all due payments have been made, the issuer has no further obligations to the bond holders after the maturity date.
    • The length of time until the maturity date is often referred to as the term or maturity of a bond.
    • Callability — Some bonds give the issuer the right to repay the bond before the maturity date on the call dates.
    • Putability — Some bonds give the holder the right to force the issuer to repay the bond before the maturity date on the put dates.

  • Redeeming at Maturity

    • A maturity date is the date when the bond issuer must pay off the bond.
    • Typically, bonds stop earning interest after they mature.
    • As long as all due payments have been made, the issuer has no further obligations to the bondholders after the maturity date.
    • A description of bonds issued including the effective interest rate, maturity date, terms, and sinking fund requirements are included in the notes to financial statements.
    • Explain how to record the retirement of a bond at maturity

  • Redeeming Before Maturity

    • Bonds can be redeemed at or before maturity.
    • For bond issuers, they can repurchase a bond at or before maturity.
    • Redemption is made at the face value of the bond unless it occurs before maturity, in which case the bond is bought back at a premium to compensate for lost interest.
    • Some bonds give the issuer the right to repay the bond before the maturity date on the call dates.
    • Some bonds give the holder the right to force the issuer to repay the bond before the maturity date on the put dates.

  • Time to Maturity

    • The issuer of a bond has to repay the nominal amount for that bond on the maturity date.
    • After this date, as long as all due payments have been made, the issuer will have no further obligations to the bondholders.
    • The length of time until a bond's matures is referred to as its term, tenor, or maturity.
    • These dates can technically be any length of time, but debt securities with a term of less than one year are generally not designated as bonds.
    • That being said, bonds have been issued with terms of 50 years or more, and historically, issues have arisen where bonds completely lack maturity dates (irredeemables).

  • Accounting for Interest Earned and Principal at Maturity

    • At maturity, firms should debit cash and credit held to maturity investments the balance of the principal payment.
    • The issuer has to repay the nominal amount on the maturity date (which can be any length of time).
    • As long as all due payments have been made, the issuer has no further obligations to the bond holders after the maturity date.
    • During the life of the debt held to maturity, the company holding the debt will record the interest received at the designated payment dates.
    • Summarize the journal entry required to record a debt held to maturity

  • Amortized Cost Method

    • Debt held to maturity is shown on the balance sheet at the amortized acquisition cost.
    • The definition of a debt is held-to-maturity is a debt which the company has both the ability and intent to hold until maturity.
    • Debt held to maturity is classified as a long-term investment and it is recorded at the market value (original cost) on the date of acquisition.
    • All changes in market value are ignored for debt held to maturity.
    • Z Company has both the ability and intent to hold the securities until the maturity date.

  • Current Maturities of Long-Term Debt

    • Long-term liabilities are liabilities with a due date that extends over one year, such as a notes payable that matures in 2 years.
    • The position of where the debt should be disclosed is based on its maturity date in relation to the due date of other current liabilities.
    • For example, a loan for which two payments of USD 1,000 are due--one in the next 12 months and the other after that date--would be split into one USD 1000 portion of the debt classified as a current liability, and the other USD 1000 as a long-term liability (note this example does not take into account any interest or discounting effects, which may be required depending on the accounting rules that may apply).
    • Bonds are a form of long-term debt because they typically mature several years after their original issue date.

  • Yield to Maturity and Rate of Return

    • Investors who purchased a financial security know the face value, the maturity date, number of interest payments per year, and the amount of interest payments.However, investors do not know the discount rate.They can substitute the information into the present value formula and solve for the discount rate.Then investors can calculate the discount rate for several different bonds and select the bond that has the highest discount rate.
    • If investors hold the bond until maturity, then we call the discount rate the yield to maturity.Economists consider yield to maturity the most accurate measure of the interest rates because the yield to maturity allows investors to compare different bonds.For example, you want to buy a coupon bond today for a market price of $1,600.Bond pays $400 interest per year and matures in three years.Finally, the bond pays $1,000 on the maturity date.Consequently, we calculate your yield to maturity of 14.11% in Equation 6.You can compare this yield toother investments and choose the investment with the greatest yield.
    • Yield to maturity generates two important rules on bonds, which are:
    • If a bond has a shorter maturity, subsequently, its price will fluctuate less for a change in the market interest rate.We show this by an example.
    • You can become confused by the terms used throughout this book.We use yield to maturity, discount rate, and interest rate interchangeably, and you can interpret these terms to mean an interest rate.However, a rate of return differs because investors could sell their securities before they matured.Thus, the rate or return includes the interest rate and capital gains or losses.A capital gain is an investor sells a financial security for greater price, while a capital loss is an investor sells a financial security for a lower price.Investors do not want capitallosses, but they can occur.For instance, an investor must sell an asset whose market price has dropped because he or she needs cash quickly.Thus, the present value still works for capital gains and losses.Finally, if the investor holds onto the security onto the maturity date, then the rate of return equals the yield to maturity.

  • Yield to Maturity

    • The formula for yield to maturity:
    • Yield to put: same as yield to call, but when the bond holder has the option to sell the bond back to the issuer at a fixed price on specified date.
    • If you hold the bond until maturity, ABC Company will pay you $5 as interest and $100 par value for the matured bond.
    • Development of yield to maturity of bonds of 2019 maturity of a number of Eurozone governments.
    • Classify a bond based on its market value and Yield to Maturity