Maturity Date

Q: Jennifer, age 42, is saving for her daughter's college education, which begins in 5 years. She has $50,000 to invest and wants to ensure the principal is available when tuition payments begin. She is moderately risk-averse and concerned about interest rate fluctuations. Which bond maturity strategy would be most appropriate for Jennifer's objective?

**B is correct.** Matching bond maturities to the investment time horizon (4-6 years) minimizes interest rate risk and ensures principal availability when needed. By holding bonds to maturity, Jennifer avoids having to sell at potentially unfavorable prices if rates rise. This strategy aligns the certain return of principal at maturity with her college funding deadline. A exposes Jennifer to significant interest rate risk with 30-year maturities. If rates rise over the next 5 years, these long-term bonds would suffer substantial price declines, forcing her to sell at a loss when tuition is due. C (rolling 1-year T-bills) exposes her to reinvestment risk: if rates fall, she would reinvest at progressively lower yields over 5 years. D creates unnecessary risk by holding bonds maturing well beyond her 5-year need (10-30 years), exposing her to price volatility when she needs to liquidate.

Q: Which of the following correctly describes the maturity classification for Treasury securities?

**B is correct.** Treasury bills (T-bills) have maturities of 1 year or less (4, 8, 13, 26, and 52 weeks). Treasury notes (T-notes) have maturities of 2 to 10 years (2, 3, 5, 7, and 10 years). Treasury bonds (T-bonds) have maturities greater than 10 years, typically 20 or 30 years. These classifications are standard for all U.S. Treasury securities. A incorrectly extends T-bills to 2 years, overlapping with T-notes. C incorrectly limits T-bills to 6 months (52-week T-bills exist) and misclassifies T-notes as ending at 5 years when they extend to 10 years. D incorrectly states T-notes extend to 20 years, which is T-bond territory. Knowing these precise maturity ranges is essential for identifying Treasury securities on the exam.

Q: An investment adviser is reviewing four bonds for a client portfolio. Which bond would be classified as intermediate-term based on standard maturity classifications?

**B is correct.** Intermediate-term bonds have maturities between 1 and 10 years. A municipal bond maturing in 7 years falls squarely within this range. Intermediate-term bonds balance yield (higher than short-term) with manageable interest rate risk (lower than long-term). A (11 months) is short-term (≤1 year), typically offering lower yields but minimal interest rate risk. C (15 years) is long-term (>10 years), exposing investors to greater interest rate risk and price volatility. D (25 years) is also long-term; the zero-coupon structure amplifies interest rate sensitivity even further because no interim cash flows cushion price changes. Remember the three classifications: short (≤1 year), intermediate (1-10 years), long (>10 years).

Q: All of the following statements about bond maturity dates are accurate **EXCEPT**

**C is correct (the EXCEPT answer).** Bonds with the same maturity will NOT experience identical price changes when rates change. Price sensitivity depends on multiple factors beyond maturity: coupon rate (higher coupons reduce price sensitivity), credit quality (riskier bonds react differently), and whether the bond is callable. Duration, not maturity alone, measures actual price sensitivity. A is accurate: the maturity date is when the issuer repays the face value (principal) and interest payments cease. B is accurate: longer maturity bonds have greater interest rate risk because their cash flows extend further into the future, creating more uncertainty and price volatility when rates change. D is accurate: if you hold a bond until maturity, you receive the full face value regardless of interim price fluctuations, eliminating interest rate risk on principal (though reinvestment risk on coupons remains).

Q: An investor compares two corporate bonds from the same issuer with identical credit ratings: Bond X matures in 3 years with a 5% coupon, and Bond Y matures in 20 years with a 5% coupon. Which of the following statements about these bonds are accurate? 1. Bond Y will have a higher yield-to-maturity than Bond X if the yield curve is upward-sloping 2. Bond Y will experience larger percentage price changes than Bond X if interest rates change 3. Bond X is classified as short-term while Bond Y is classified as long-term 4. Both bonds will return their principal on their respective maturity dates if held to maturity

**B is correct.** Statements 1, 2, and 4 are accurate. Statement 1 is TRUE: An upward-sloping yield curve means longer maturities offer higher yields to compensate for greater interest rate risk. Bond Y (20 years) would have a higher YTM than Bond X (3 years) in this environment. Statement 2 is TRUE: Longer maturity bonds have greater price sensitivity to interest rate changes (higher duration). Bond Y's 20-year maturity makes it far more volatile than Bond X's 3-year maturity when rates change. For identical coupon rates, longer maturity always means greater price volatility. Statement 3 is FALSE: Bond X (3 years) is intermediate-term, not short-term. Short-term is ≤1 year. Bond Y (20 years) is correctly classified as long-term (>10 years). Statement 4 is TRUE: Regardless of interim price fluctuations, both bonds will return their full principal (face value) on their respective maturity dates if held to maturity and the issuer doesn't default. This is a fundamental bond characteristic.

Investment Vehicles High Relevance

The date when a bond's principal (face value) is repaid to investors and interest payments cease. Bonds are classified by maturity: short-term (≤1 year), intermediate-term (1-10 years), and long-term (>10 years). Longer maturity bonds generally carry greater interest rate risk because their prices fluctuate more significantly when market rates change.

Example

A 30-year Treasury bond issued in 2020 has a maturity date of 2050. An investor purchasing it will receive semi-annual coupon payments until 2050, when the $1,000 face value is returned. If interest rates rise significantly, this long-term bond will experience larger price declines than a 2-year Treasury note due to its distant maturity date and higher interest rate risk.

Common Confusion

Students often confuse maturity with duration (maturity is the final payment date; duration measures price sensitivity), assume all bonds with the same maturity have identical risk (coupon rate and credit quality also matter), or forget that Treasury classifications have specific maturity ranges (T-bills ≤1 year, T-notes 2-10 years, T-bonds >10 years).

How This Is Tested

Identifying appropriate bond maturities based on client investment time horizon and liquidity needs
Understanding that longer maturity bonds have greater interest rate risk and price volatility
Classifying securities by maturity ranges (short-term, intermediate-term, long-term)
Recognizing Treasury security types based on maturity (T-bills vs T-notes vs T-bonds)
Comparing bonds with different maturities to assess interest rate risk and yield curve positioning

Regulatory Limits

Description	Limit	Notes
Short-term maturity classification	≤1 year	Includes money market instruments and Treasury bills
Intermediate-term maturity classification	1-10 years	Includes Treasury notes (2, 3, 5, 7, 10 years)
Long-term maturity classification	>10 years	Includes Treasury bonds (20-30 years) and long corporate bonds
Treasury Bills maturity range	4 weeks to 1 year	Shortest maturity Treasury securities (4-week, 8-week, 13-week, 26-week, 52-week)
Treasury Notes maturity range	2 to 10 years	Intermediate-term Treasury securities (2, 3, 5, 7, 10 years)
Treasury Bonds maturity range	>10 years (typically 20-30 years)	Longest maturity Treasury securities

Example Exam Questions

Test your understanding with these practice questions. Select an answer to see the explanation.

Question 1

Jennifer, age 42, is saving for her daughter's college education, which begins in 5 years. She has $50,000 to invest and wants to ensure the principal is available when tuition payments begin. She is moderately risk-averse and concerned about interest rate fluctuations. Which bond maturity strategy would be most appropriate for Jennifer's objective?

Question 2

Which of the following correctly describes the maturity classification for Treasury securities?

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Question 3

An investment adviser is reviewing four bonds for a client portfolio. Which bond would be classified as intermediate-term based on standard maturity classifications?

Question 4

All of the following statements about bond maturity dates are accurate EXCEPT

Question 5

An investor compares two corporate bonds from the same issuer with identical credit ratings: Bond X matures in 3 years with a 5% coupon, and Bond Y matures in 20 years with a 5% coupon. Which of the following statements about these bonds are accurate?

1. Bond Y will have a higher yield-to-maturity than Bond X if the yield curve is upward-sloping
2. Bond Y will experience larger percentage price changes than Bond X if interest rates change
3. Bond X is classified as short-term while Bond Y is classified as long-term
4. Both bonds will return their principal on their respective maturity dates if held to maturity

💡 Memory Aid

Think of maturity like a loan payback date: The further away the date (longer maturity), the more the loan's value bounces around when interest rates change. "Long maturity = Long wait = Lots of wobble" (interest rate risk). Remember "T-B-N" for Treasuries: T-bills = Tiny time (≤1 year), T-notes = Normal time (2-10 years), T-bonds = Big time (>10 years). When the maturity date arrives, you get your principal back (the party's over, cash out!).