Maturity definition
/What is Maturity in Finance?
The typical investment has a predefined lifespan. Maturity refers to the date on which the investment terminates. For specifically, maturity is the date on which the principal associated with a debt becomes due for payment. Upon repayment, the instrument is cancelled. The concept is most commonly associated with a bond.
If the issuer of debt does not repay investors on the maturity date, the instrument will be in default, which will have significant negative repercussions for the credit rating of the issuer.
Examples of Maturity in Finance
Here are several examples that highlight different ways in which the maturity concept can be applied in finance:
Bond maturity. A 10-year Treasury bond issued in 2024 matures in 2034. This means that in 2034, the U.S. government must repay the bondholder the face value of the bond.'
Loan maturity. A mortgage with a 30-year term issued in 2020 will mature in 2050, meaning the borrower must fully repay the loan by this date.
Certificate of deposit maturity. A bank offers a 1-year CD with a fixed interest rate. If an individual deposits funds into this CD, they must wait until the maturity date (one year later) to withdraw the funds without penalty.
Commercial paper maturity. A corporation issues commercial paper with a 90-day term to cover short-term cash needs. The paper will mature, or need repayment, in 90 days.
Each of these examples demonstrates a unique aspect of "maturity" across various financial products.