How to Find the Maturity Value for an Investment

Thứ bảy - 27/04/2024 01:09
Find out how much you'll pay in interest Maturity value is the amount payable to an investor at the end of a debt instrument's holding period (maturity date). For most bonds, the maturity value is the face amount of the bond. For some...
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Maturity value is the amount payable to an investor at the end of a debt instrument’s holding period (maturity date). For most bonds, the maturity value is the face amount of the bond. For some certificates of deposit (CD) and other investments, all of the interest is paid at maturity. If all of the interest is paid at maturity, each of the interest payments may be compounded. To calculate the maturity value for these investments, the investor adds all of the compounding interest to the principal amount (original investment).

Things You Should Know

  • Use the formula V = P x (1 + R) ^ n, where V is the maturity value, P is the principal amount, n is the number of compound intervals, and R is the periodic interest rate.
Part 1
Part 1 of 2:

Determining The Maturity Value

  1. Step 1 Use the periodic rate to compute your interest earned.
    Assume that you own a $1,000 12% certificate of deposit that matures in 3 years. Your CD pays all of the interest at maturity. To compute the maturity value, you need to calculate all of your compounding interest.[1]
    • Say that your CD compounds interest monthly. You periodic rate is (12% / 12 months = 1%). To keep it simple, assume that each month has 30 days. Many investments, including corporate bonds, use a 360-day year to calculate interest.
    • Assume that January is the first month that you own the CD. In month one, your interest is ($1,000) X (1%) = $10.
    • To calculate interest for February, you need to add the January interest to your principal amount. Your new principal amount for February is ($1,000 + $10 = $1,010).
    • In February, you earn interest totaling ($1,010 X 1% = $10.10). You see that your February interest is higher than January’s amount by 10 cents. You earn additional interest because of compounding.
    • Each month, you add all of the prior interest to the original $1,000 principal amount. The total is your new principal balance. You use that balance to calculate interest for the next period (a month, in this case).
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Part 2
Part 2 of 2:

Reviewing Debt Instruments

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Calculator, Practice Problems, and Answers

Sample Maturity Value Calculator
Sample Calculating Maturity Value Practice Problems
Sample Calculating Maturity Value Practice Answers

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