Term bonds

Definition

Term bonds are a type of bond that matures on a single, specified date in the future. They contrast with serial bonds, which have multiple maturity dates.

5 Must Know Facts For Your Next Test

1. Term bonds typically pay interest periodically until maturity when the principal is repaid.
2. They are often used by corporations and governmental entities to raise long-term capital.
3. The pricing of term bonds depends on factors such as interest rates, credit quality, and market conditions.
4. Investors may prefer term bonds for their predictability in cash flows and maturity dates.
5. Callable term bonds allow issuers to repay the bond before the maturity date under specific conditions.

Review Questions

• What distinguishes term bonds from serial bonds?
• How does the interest rate environment affect the pricing of term bonds?
• Why might an investor choose to invest in a term bond?

Related terms

Serial Bonds: Bonds that mature at different intervals over a period of time.

Callable Bonds:

Bonds that can be repaid by the issuer before their maturity date.

Coupon Rate: The interest rate stated on a bond when it's issued, typically paid semi-annually.