What happens when a bond becomes due?
When a bond becomes due, the issuer is required to pay the amount of money that they arranged with the holder, plus the interest. The terms of maturity for each type of bond are different.
In accounting, a bond is a form of borrowing, specifically a fixed-income investment. A person or company buys a bond from an issuer at a fixed price, and then waits until the bond reaches maturity to receive their money back. Bond investments can be attractive to people who are looking for regular income since most issuers pay back bonds over time. Investors can receive installments of coupons, whose rates are expressed as a percentage of the principal amount.
The day a bond becomes due is called the maturity date. On this day, the holder of the bond receives his money back. The issuer is also required to pay the bond’s interest, which is usually a predictable amount for each year. The holder can set a term limit for maturity, from one to 30 years.
According to Investopedia, there are three primary types of bonds: short-term, medium-term, and long-term bonds. The term until maturity varies with each type of bond. For instance, short-term bonds are held for for one to three years; middle-term bonds mature in 10 years; and long-term bonds can have terms for up to 30 years. Long-term bonds can be more advantageous since they usually offer a higher coupon rate, meaning that the issuer will be required to pay a higher price when the bond becomes due. However, these bonds can also be riskier because of the possibility of the issuer to default on the loan increases. It is essential to know the classification of a particular bond to learn when the bond will reach maturity and when the issuer will need to pay the holder the money they have invested.
"What happens when a bond becomes due?" Custom-Writing, 1 Apr. 2020, custom-writing.org/qna/what-happens-when-a-bond-becomes-due/.
1. Custom-Writing.org. "What happens when a bond becomes due?" April 1, 2020. https://custom-writing.org/qna/what-happens-when-a-bond-becomes-due/.
Custom-Writing.org. "What happens when a bond becomes due?" April 1, 2020. https://custom-writing.org/qna/what-happens-when-a-bond-becomes-due/.
Custom-Writing.org. 2020. "What happens when a bond becomes due?" April 1, 2020. https://custom-writing.org/qna/what-happens-when-a-bond-becomes-due/.
Custom-Writing.org. (2020, April 1). What happens when a bond becomes due? Retrieved from https://custom-writing.org/qna/what-happens-when-a-bond-becomes-due/
Custom-Writing.org. (2020) 'What happens when a bond becomes due'. 1 April.