Question

The "maturity date" for this security is shown as "10/01/2035." An investor in this security might be concerned about its very long maturity (30 years). Why is the maturity date a misleading measure of the security's maturity?

Answer 1

The maturity date of a bond is a misleading measure of its maturity because it only represents when the borrower will pay back the face value and last interest payment. Investors should consider the present value and risk associated with the investment.

Step-by-step explanation:

The maturity date is a misleading measure of the security's maturity because it only represents the date when the borrower will pay back the face value of the bond and its last interest payment.

When investing in a bond, it is important to consider the present value of the bond, which takes into account the bond's face value, interest rate, and market interest rates at that given time. The present value is the most that a buyer would be willing to pay for a given bond.

Additionally, the risk associated with the investment should be considered. A bond with a long maturity date may have a higher risk because the longer the investment horizon, the more uncertain the future economic and market conditions become.