Final answer:
A $1,000 bond with $100 annual interest payments that has 5 years to maturity is known as a fixed-rate bond. It offers a fixed and predictable amount of interest income each year.
Step-by-step explanation:
A $1,000 bond with $100 annual interest payments that has 5 years to maturity is known as a bond with a fixed interest rate. The bond issuer promises to pay the bondholder $100 per year for 5 years, and at the end of the 5 years, the bondholder will receive the $1,000 face value of the bond. This type of bond is commonly referred to as a fixed-rate bond or a fixed-income security.
The characteristics of this bond include:
- Face value: $1,000
- Annual interest payment: $100
- Number of years to maturity: 5
One implication of investing in this bond is that the bondholder will receive a fixed and predictable amount of interest income each year, regardless of changes in the market interest rates. However, if market interest rates rise, the bond may become less attractive to potential buyers, resulting in a decrease in its market value.