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Why do bonds rarely sell for their maturity value?

Author:
Harold Averkamp, CPA, MBA

The reasons why bonds rarely sell for their maturity value are:

  1. The interest paid is usually fixed at the interest rate that is stated on the face of the bond. As a result, the amount of interest paid each year does not change during the life of the bond.
  2. The market interest rate—the rate that bond buyers demand—is changing daily.

To illustrate, let’s assume that a 6% bond will mature in ten years and has a maturity value of $100,000. This means that the bondholders will be receiving $6,000 in interest in each of the ten years. If there is a day when the bond buyers demand an interest rate of 6.2% then the bond’s value on that day will be less than $100,000. If on another day the bond buyers demand 5.9% interest, the bond’s value on that day will be greater than $100,000.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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