Original Maturity

Original Maturity Bonds Maturity Date Issue Date Fixed Income Investments
Original maturity refers to the interval between the issue date and the maturity date of a bond, distinct from current maturity, which measures the remaining time from the present to the maturity date.
On this page

Definition

Original Maturity is the duration between the initial issuance date of a bond and its maturity date. It signifies the total lifespan of a bond from the moment it is issued until it is scheduled to be redeemed. This is different from current maturity, which refers to the remaining time from the present date to the bond’s maturity date.

Examples

  1. 10-Year Treasury Bond:

    • Issue Date: January 1, 2020
    • Maturity Date: January 1, 2030
    • Original Maturity: 10 Years

  2. Corporate Bond:

    • Issue Date: March 1, 2021
    • Maturity Date: March 1, 2026
    • Original Maturity: 5 Years

These illustrate bonds with different original maturities as defined by their specific lifespan at issuance.

Frequently Asked Questions

What is the significance of original maturity?

Original maturity is crucial for investors as it impacts the bond’s interest rate risk, yield, and the investment strategy. Longer original maturities typically come with higher yields to compensate for the higher risk over time.

How does original maturity differ from remaining maturity?

While original maturity is the total period from issuance to maturity, remaining maturity (or current maturity) is the time left from the present moment until maturity.

Can the original maturity of a bond change?

No, the original maturity of a bond is fixed at the time of issuance. However, its remaining maturity will decrease over time as the maturity date approaches.

Is original maturity more important than remaining maturity?

It depends on the context. Original maturity is important for understanding the bond’s intended lifespan and its interest rate risks at issuance. Remaining maturity is crucial for current valuation, assessing interest rate sensitivity, and decisions on buying/selling in the secondary market.

How is original maturity connected to bond pricing?

Original maturity affects the bond’s yield and coupon rates at issuance. Longer maturities often command higher interest rates to compensate for the uncertainty and inflation risk over a prolonged period.

Bond

A fixed-income instrument representing a loan made by an investor to a borrower, usually corporate or governmental. It includes the terms of the loan, including the interest payments and repayment schedule.

Maturity Date

The specific date in the future when the principal amount of a bond will be repaid to the bondholder.

Coupon Rate

The annual interest rate paid on a bond’s face value by the issuer to the bondholder.

Yield to Maturity (YTM)

The total return anticipated on a bond if held until it matures, considering both interest payments and any capital gain or loss.

Interest Rate Risk

The risk that changes in market interest rates will affect the value of the bond.

Online References

Suggested Books for Further Studies

  • “The Bond Book” by Annette Thau
  • “Bond Markets, Analysis, and Strategies” by Frank J. Fabozzi
  • “Fixed Income Securities: Tools for Today’s Markets” by Bruce Tuckman and Angel Serrat

Fundamentals of Original Maturity: Finance Basics Quiz

### What does original maturity refer to in bond investments? - [ ] The remaining time until the bond matures - [x] The time interval between issuance and maturity - [ ] The interest rate applied at issuance - [ ] The bond's market price fluctuation > **Explanation:** Original maturity is the time interval between the issuance of the bond and its maturity date. ### If a bond has an issue date of June 1, 2021, and a maturity date of June 1, 2031, what is the original maturity? - [ ] 5 years - [x] 10 years - [ ] 6 years - [ ] 15 years > **Explanation:** The original maturity is 10 years as it spans from June 1, 2021, to June 1, 2031. ### Does original maturity ever change? - [ ] Yes, it can change with market conditions. - [ ] Yes, upon bondholder requests. - [x] No, it is fixed at issuance. - [ ] No, unless re-issued. > **Explanation:** Original maturity is fixed when the bond is issued and does not change. ### Why might longer original maturities result in higher yields? - [ ] Because they are more valuable - [ ] Due to lower interest rates - [x] Higher interest rate risk and inflation risk - [ ] They have better credit ratings > **Explanation:** Longer original maturities often have higher yields to compensate investors for higher interest rate risk and inflation risk over time. ### What is affected by the length of a bond’s original maturity? - [ ] Only the bond's price - [ ] The bond's coupon rate and yield - [x] Risk profile, interest rate sensitivity, and yield - [ ] The bond’s trading volume > **Explanation:** The bond’s risk profile, interest rate sensitivity, and yield are affected by its original maturity. ### If today's date is July 1, 2025, what is the bond’s remaining maturity if it was originally issued on July 1, 2015, with a 20-year original maturity? - [ ] 5 years - [ ] 10 years - [ ] 15 years - [x] 10 years > **Explanation:** With a 20-year original maturity from 2015, and given it is 2025, the remaining maturity is now 10 years. ### What does current maturity measure? - [ ] The bond's coupon date - [x] Time remaining until maturity - [ ] The issuer's credit rating - [ ] The issuance date relative value > **Explanation:** Current maturity measures the time remaining from today until the bond’s maturity. ### Objects by which attribute will help in calculating the interest rate risk for evaluating a bond? - [x] Original maturity - [ ] Market price - [ ] Issuer’s credit rating - [ ] Trading volume > **Explanation:** Original maturity helps in evaluating interest rate risk, as longer maturities typically involve higher interest rate risk. ### How does inflation risk correlate with original maturity? - [ ] Greater with shorter original maturity - [x] Greater with longer original maturity - [ ] Not related - [ ] Lesser with longer original maturity > **Explanation:** Inflation risk is usually greater with longer original maturities because the value of future cash flows may be eroded by inflation over longer periods. ### How would a bond issued on January 1, 2022, maturing on January 1, 2037 be classified in terms of original maturity? - [x] Long-term bond - [ ] Short-term bond - [ ] Mid-term bond - [ ] Floating-rate bond > **Explanation:** A bond with a 15-year original maturity is classified as a long-term bond.

Thank you for exploring the intricacies of original maturity in bonds and challenging yourself with our sample exam quiz questions. Continue honing your knowledge in fixed-income investments!

Wednesday, August 7, 2024
Original Order
Original Issue Discount (OID)
Registered Bond January 1, 1
Term Bond January 1, 1
Yield to Maturity (YTM) January 1, 1
Asset-Backed Medium-Term Note (ABMTN) January 1, 1
Bond Discount January 1, 1
Bulldog Bond January 1, 1
Callable January 1, 1
Capped Floating-Rate Note (Capped FRN) January 1, 1
Closed Period January 1, 1
Convertibles January 1, 1

Accounting Terms Lexicon

Discover comprehensive accounting definitions and practical insights. Empowering students and professionals with clear and concise explanations for a better understanding of financial terms.