How to Compute the Time to Maturity for a Bond

While stocks, foreign currencies or some investment commodities like gold come with no maturity dates, bonds expire on specific dates. It's crucial to know when the bonds in your portfolio mature and how much time you have left until the maturity date. When a bond matures, the bond's issuer will pay you cash. If you suddenly find out that a bond in your portfolio has matures, you may have to keep its cash proceeds in a bank while you investigate suitable investment alternatives. Bank deposits earn a comparatively low interest rate. Therefore, the less time your money spends in a bank, the higher your overall investment return tends to be.

What Is the Maturity Date?

First, you should determine the bond's maturity date so that you know when you can cash in the bond. The maturity date is when you will return the bond to the issuing entity -- which can be a corporation, municipality, foreign government or the federal government -- to receive the original issue price of the bond. Once the bondholder submits the bond to the issuer on the maturity date, the bond will cease to exist. If the bond was issued by a corporation, you can find the maturity date by contacting the issuing company's investor relations department. For government bonds, you can consult a finance portal, such as Yahoo! Finance or Google Finance.

How Long Until the Bond Matures?

Next, you will want to find the number of days remaining until the bond's maturity date. The easiest way to do so is to use a spreadsheet software such as Microsoft Excel. Enter the bond's maturity date in one cell and today's date in another. Then, in a third cell, subtract the two dates from each other. You must type an equal sign, followed by the name of the cell containing the maturity date, followed by a minus sign, followed by the name of the cell containing today's date. If for example, you typed today's date in C12 and the expiration date in C13, the formula will read: "= C13-C12."

Divide the number of days between today and the maturity date by 365. The result is the time to maturity, expressed in years. If, for example, today's date is January 1, 2018, and the maturity date is August 15, 2026, there are 3,148 days remaining until the maturity date. Dividing 3,148 by 365 results in 8.62 years.

the nest