Question: What is the difference between term-to-maturity and maturity of a bond?
Answer: Generally, people use both maturity, term, and term-to-maturity interchangeably to refer to the number of years remaining in the life of a bond. But technically speaking the differ, - Maturity: represent the date the bond will be redeemed - Term or term-to-maturity: represents the remaining number of years until that date.
Question: Why maturity of a bond is so crucial?
Answer: A bond’s maturity is very important because of various reasons as below. - Bond Life: Maturity represents the expected life of the instrument - Bond Coupon: The number of periods during which the holder of the bond can expect to receive the coupon interest - Principal: The number of years before the principal will be paid. - Yield: the yield on a bond depends substantially on its maturity. - Bond Price: Bond price volatility is closely associated with maturity. - Risk: Maturity also affects the risk of the bonds.
Question: How does the yield related between long-term and short-term bond?
Answer: There is no specific relationship, it varies as, at any given point in time, the yield offered on a long-term bond may be greater than, less than, or equal to the yield offered on a short-term bond.
Question: Is it possible that bond’s maturity can be changed, once bond is issued?
Answer: Yes, it is possible and the investor should be aware of any provisions that modify, or permit the issuer to modify, the maturity of a bond.