Time to Maturity
"Time to maturity" refers to the length of time before the par value of a bond must be returned to the bondholder.
Learning Objective

Discuss the importance of a bond's maturity when determining its value
Key Points
 The maturity can be any length of time, but debt securities with a term of less than one year are generally not designated as bonds. Instead, they are considered money market instruments.
 In the market for United States Treasury securities, there are three categories of bond maturities: shortterm, mediumterm and longterm bonds.
 A bond that takes longer to mature necessarily has a greater duration. The bond price in this type of a situation, therefore, is more sensitive to changes in interest rates.
Terms

duration
A measure of the sensitivity of the price of a financial asset to changes in interest rates, computed for a simple bond as a weighted average of the maturities of the interest and principal payments associated with it

money market
A market for trading shortterm debt instruments, such as treasury bills, commercial paper, bankers' acceptances, and certificates of deposit
Full Text
Time to Maturity
"Time to maturity" refers to the length of time that can elapse before the par value (face value) for a bond must be returned to a bondholder. This time may be as short as a few months, or longer than 50 years. Once this time has been reached, the bondholder should receive the par value for their particular bond.
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. Instead, they are designated as money market instruments .
Money market interest rates
Interest rates of onemonth maturity of German banks from 1967 to 2003
Most bonds have a term of up to 30 years. 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). In the market for United States Treasury securities, there are three categories of bond maturities:
 Short term (bills): maturities between one to five years (Instruments that mature in less than one year are considered Money Market Instruments. )
 Medium term (notes): maturities between six to twelve years
 Long term (bonds): maturities greater than twelve years
Because bonds with long maturities necessarily have long durations, the bond prices in these situations are more sensitive to interest rate changes. In other words, the price risk of such bonds is higher. The fair price of a "straight bond," a bond with no embedded options, is usually determined by discounting its expected cash flows at the appropriate discount rate. Although this present value relationship reflects the theoretical approach to determining the value of a bond, in practice, the price is (usually) determined with reference to other, more liquid 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. This is because the par value is discounted at a higher rate further into the future.
Finally, it is important to recognize that future interest rates are uncertain, and that the discount rate is not adequately represented by a single fixed number (this would be the case if an option was written on the bond in question) stochastic calculus may be employed. Where the market price of a bond is less than its face value (par value), the bond is selling at a discount. Conversely, if the market price of bond is greater than its face value, the bond is selling at a premium.
Key Term Reference
 Interest
 Appears in these related concepts: Interest Compounded Continuously, Your Areas of Interest, and Tax Considerations
 bond
 Appears in these related concepts: Factors Affecting the Price of a Bond, Current Maturities of LongTerm Debt, and Preferred Stock
 cash flow
 Appears in these related concepts: Calculating the NPV, Interpreting the NPV, and Defining the Cash Flow Cycle
 debt
 Appears in these related concepts: Debt Utilization Ratios, Deficit Spending, the Public Debt, and Policy Making, and Collection from Delinquent Payables
 discount
 Appears in these related concepts: The Discount Rate, Par Value at Maturity, and Present Value, Multiple Flows
 discount rate
 Appears in these related concepts: Discounted Cash Flow Approach, The Discount Rate, and The Federal Reserve and the Financial Crisis of 2008
 discounting
 Appears in these related concepts: The Relationship Between Present and Future Value, ShortTerm Approach, and Importance of the Time Value of Money
 interest rate
 Appears in these related concepts: Greenspan Era, The Financial Account, and Determinants of investment
 issuer
 Appears in these related concepts: Underwriter, Reporting of Financial Statement Analysis, and BlackScholes Formula
 maturity
 Appears in these related concepts: Types of Financial Markets, Accounting for Interest Earned and Principal at Maturity, and Maturity
 par
 Appears in these related concepts: Characteristics of Bonds, Call Provisions, and Accounting for Preferred Stock
 par value
 Appears in these related concepts: Par Value, Convertible Stock, and Equity Finance
 premium
 Appears in these related concepts: The Term Structure, Redeeming Before Maturity, and Health Insurance
 present value
 Appears in these related concepts: Capital Leases vs. Operating Leases, Calculating Values for Different Durations of Compounding Periods, and Present Value and the Time Value of Money
 risk
 Appears in these related concepts: The ExportImport Bank of the United States, Approaches to Assessing Risk, and Risks Involved in Capital Budgeting
 securities
 Appears in these related concepts: Secondary Market Organizations, Types of Market Organizations, and Financial Instruments
 security
 Appears in these related concepts: Maslow's Hierarchy of Needs, Advantages of Public Financing, and Pricing a Security
 stochastic
 Appears in these related concepts: Chance Models, Optimization, and Defining Options and Their Valuation
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