Maturity

• The maturity date for a bond can be as far off as 30 or 100 years. Maturity dates for short-term bonds range up to three years. Medium-term bonds mature at ranges of four to 10 years. The maturity date range for long-term bonds exceeds 10 years. Short-term bonds have less risk, provide lower returns to investors and the principal investment amount is repaid sooner. Long-term bonds have greater risk for investors, because of market fluctuations over a long period, but offer bond purchasers larger returns.
  
  

Interest Rates

• Bonds may have floating or fixed interest rates. Bond interest may also be payable at maturity. If you purchase a bond with fixed rate interest, you will receive coupon payments on the interest twice yearly until the maturity date, at which time you are repaid the amount you paid for the bond. The interest changes periodically on floating rate bonds. Bond holders do not receive interest payments on zero coupon bonds, but instead receive one payment on the maturity date. The lump sum payment includes the principal, or purchase price, and the total interest earned on the bond based on the original interest rate. Zero coupon bonds are sold for significantly lower prices than the face value.
  
  

Redemption Options

• Bond issuers and purchasers choose from several redemption options for repayment of investment based on the maturity date. Some redemption options allow bond purchasers or issuers to change the bond’s maturity date. The call provision involves the bond issuer selling the bond before the maturity date. The put provision involves the bond purchaser selling the bond before the maturity date. Convertible bonds, which are corporate bonds, allow a bond purchaser to convert the bond into common stock in the company in lieu of a cash payment. Some bonds are designed to compensate investors, such as those who purchase mortgage-backed bonds, based on the average life of bonds instead of the listed maturity dates.
  
  

Yield Options

• The bond yield refers to the return you earn on the bond and is based on the price you paid for the bond and the interest payments you receive. Current yield, which is calculated by dividing the interest payment by purchase prices, is the annual return you earn on the dollar amount you paid for the bond. Yield to maturity, which is the return you receive if you hold the bond until the bond matures, is based on the interest payments you have received, interest earned and loss and gain of principal. The yield to call return is offered to investors who agree to hold the bond until it is called or paid off by the issuer before the bond’s maturity date. Some yield to call bonds may be called at any time, while others are limited to specific dates or prohibited from calling during the first years after purchase.