Updated August 4, 2024
What is a Maturity?
Bond maturity refers to the date when the principal amount of a bond becomes due and payable to the bondholder. It is the date on which the bond issuer must repay the full face value of the bond to the bondholder.
The Bond Lifecycle
When a bond is issued, the issuer sets a maturity date, which is typically several years after the date of issue. The maturity date is a crucial element of a bond as it determines the length of time that the issuer has to repay the bond's principal to the bondholder. The bond's interest payments are made periodically, often semi-annually, until the maturity date.
When a bond reaches its maturity date, the bondholder receives the final interest payment and the principal amount. At this point, the bond issuer has fulfilled its obligation to the bondholder, and the bond is considered to be fully redeemed. The bondholder can choose to reinvest the principal amount in another bond or invest it in another financial instrument.
It is important to note that the bond's price can fluctuate over time, depending on market conditions and interest rates, but the bond's maturity date remains fixed. Therefore, bondholders who hold their bonds until maturity are guaranteed to receive the full principal amount back, regardless of any price fluctuations that may have occurred over the bond's life.
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