Fixed income
Maturity date
The maturity date is crucial in determining the lifespan of an investment or loan. Bonds come in various maturities, such as short-term (up to 5 years), medium-term (5-10 years), and long-term (10+ years), each with differing risk and return profiles.
Investors often choose bond maturities based on their financial goals, as longer maturities typically offer higher yields to compensate for potential interest rate risk.
For loans, the maturity date represents the deadline for full repayment of the borrowed amount, including principal and interest. Any unpaid balance beyond this date may result in additional fees or penalties. Understanding maturity dates enables both investors and borrowers to plan cash flows effectively and manage financial commitments with precision.
Yield to maturity (YTM)
Yield to maturity (YTM) is the total return an investor can expect to earn if a bond is held until its maturity date, assuming all interest payments are reinvested at the same rate. YTM considers the bond’s current price, face value, coupon rate, and time to maturity, providing a comprehensive measure of its potential profitability.