Understanding Bond Investments: Holding to Maturity vs Selling Before Maturity

💰Holding a bond until maturity classifies it as a held-to-maturity security, which is considered a long-term asset.

🔒Held-to-maturity securities are less liquid than bonds sold before maturity, making them suitable for long-term investment strategies.

💵When a bond is held to maturity, interest payments and principal are received at the specified dates, resulting in a decrease in interest receivable and an increase in cash.

💸Selling a bond before maturity can result in a gain or loss depending on market conditions and the bond's stated interest rate relative to the market rate.

📉📈Market rates of interest can affect bond values, causing bonds to sell at a premium or a discount.

What is the difference between holding a bond to maturity and selling it before maturity?

—Holding a bond until maturity means keeping it until the specified maturity date, receiving all scheduled interest payments and the principal. Selling the bond before maturity involves selling it to another investor, potentially at a gain or loss.

Are held-to-maturity securities considered long-term assets?

—Yes, held-to-maturity securities are categorized as long-term assets because they are intended to be held for a period longer than one year from the balance sheet date.

How do market rates of interest affect bond values?

—Market rates of interest can influence bond values. When market rates rise above a bond's stated interest rate, its value may decrease, potentially resulting in a discount. Conversely, when the market rates fall below the bond's stated interest rate, its value may increase, leading to a premium.

What happens to cash and interest receivable when a bond is held to maturity?

—When a bond is held to maturity, interest payments and the principal are received at the specified dates. This results in a decrease in the interest receivable balance and an increase in cash.

Can a bond be sold above or below its face value?

—Yes, a bond can be sold above or below its face value depending on market conditions. If the bond's stated interest rate is higher or lower than the market rate, it may sell at a premium or a discount.

00:00Bonds that are held until maturity are classified as held-to-maturity securities, considered long-term assets.

00:19Held-to-maturity securities are less liquid and suitable for long-term investment strategies.

00:59Interest on held-to-maturity bonds accrues over time, resulting in an increase in interest receivable.

01:11When interest is received, interest receivable decreases, and cash increases.

01:23At maturity, the bondholder receives the principal, resulting in a decrease in the bond investment and an increase in cash.

01:58Selling a bond before maturity can result in a gain or loss, depending on market conditions and the bond's stated interest rate.

03:04Market rates of interest can impact bond values, causing them to sell at a premium or a discount.

04:51If the market rate of interest is higher than the bond's stated interest rate, the bond may sell at a discount.