maturity

(noun)

Date when payment is due.

Related Terms

Examples of maturity in the following topics:

  • Maturity Date

    • 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.
    • short term (bills): maturities between 1 to 5 years (instruments with maturities less than one year are called "Money Market Instruments");
    • Normally the maturity of a bond is fixed.
    • In this case, the maturity date is the day when the bond is called.

  • Yield to Maturity

    • The formula for yield to maturity:
    • Yield to maturity (YTM) = [(Face value / Present value)1/Time period]-1
    • 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

  • Time to Maturity

    • The length of time until a bond's matures is referred to as its term, tenor, or maturity.
    • Short term (bills): maturities between one to five years (Instruments that mature in less than one year are considered Money Market Instruments. )
    • In general, coupon and par value being equal, a bond with a short time to maturity will trade at a higher value than one with a longer time to maturity.
    • Interest rates of one-month maturity of German banks from 1967 to 2003
    • Discuss the importance of a bond's maturity when determining its value

  • Chapter Questions

    • A T-bill has a face value of $20,000 with a yield to maturity of 3%, and this bill matures in 270 days.
    • If the yield to maturity is 5% and the bond matures in three years, calculate the market value of this bond.
    • If the yield to maturity is 20% and the bond matures in three years, compute the market value of this bond.
    • If the bond matures in 3 years with a face value of $5,000, calculate your yield-to-maturity (YTM).

  • Calculating Yield to Maturity Using the Bond Price

    • The yield to maturity is the discount rate which returns the market price of the bond.
    • Formula for yield to maturity: Yield to maturity(YTM) = [(Face value/Bond price)1/Time period]-1
    • As can be seen from the formula, the yield to maturity and bond price are inversely correlated.
    • With 20 years remaining to maturity, the price of the bond will be 100/1.0720, or $25.84.
    • Even though the yield-to-maturity for the remaining life of the bond is just 7%, and the yield-to-maturity bargained for when the bond was purchased was only 10%, the return earned over the first 10 years is 16.25%.

  • Par Value at Maturity

    • Par value is stated value or face value, with a typical bond making a repayment of par value at maturity.
    • A typical bond makes coupon payments at fixed intervals during the life of it and a final repayment of par value at maturity.
    • Together with coupon payments, the par value at maturity is discounted back to the time of purchase to calculate the bond price.
    • F = face value, iF = contractual interest rate, C = F * iF = coupon payment (periodic interest payment), N = number of payments, i = market interest rate, or required yield, or observed/ appropriate yield to maturity, M = value at maturity, usually equals face value, P = market price of bond.
    • Bond price is the present value of coupon payments and the par value at maturity.

  • Yield to Maturity and Rate of Return

    • 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:
    • Market interest rate (or yield to maturity) and the market price (or present value) of the securities are inversely related.For example, if you examine the present value formula, the interest rate, or yield to maturity is located in the denominators of the fractions.Thus, the market price falls as the interest rate rises, and vice versa.
    • 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.

  • Zero-Coupon Bonds

    • When the bond reaches maturity, its investor receives its par (or face) value.
    • Long-term zero coupon maturity dates typically start at 10 to 15 years.
    • The bonds can be held until maturity or sold on secondary bond markets.
    • Short-term zero coupon bonds generally have maturities of less than one year and are called bills.
    • Pension funds and insurance companies like to own long maturity zero-coupon bonds because of the bonds' high duration.

  • Impact of Payment Frequency on Bond Prices

    • Bond prices is the present value of all coupon payments and the face value paid at maturity.
    • F = face value, iF = contractual interest rate, C = F * iF = coupon payment (periodic interest payment), N = number of payments, i = market interest rate, or required yield, or observed / appropriate yield to maturity, M = value at maturity, usually equals face value, P = market price of bond.
    • In other words, bond price is the sum of the present value of face value paid back at maturity and the present value of an annuity of coupon payments.
    • For bonds of different payment frequencies, the present value of face value received at maturity is the same.
    • Bond price is the present value of all coupon payments and the face value paid at maturity.

  • Par Value

    • Par value is the amount of money a holder will get back once a bond matures; a bond can be sold at par, at premium, or discount.
    • Par value/face value (also known as the principal) is the amount of money a holder will get back once a bond matures.
    • A bond's price fluctuates throughout its life in response to a number of variables, including interest rates and time to maturity.
    • At maturity, the price of a debt instrument in good standing should equal its par (or face value).
    • Another name for this effect is "reduction of maturity. " It results from the difference between market interest rate and the nominal yield on the bond.