Buzz
Calculate your accrued interest
Maturity value represents the total sum an investor receives at the end of a debt instrument’s term (maturity date). Typically, for most bonds, it equals the bond's face value. However, for certain investments like certificates of deposit (CD), all interest is paid upon maturity. If interest is compounded, each interest payment contributes to the maturity value. To compute the maturity value, add all compounded interest to the original investment amount (principal).
Key Points to Remember
- Apply 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.
Procedure
Understanding Maturity Value
Calculating Interest Earned To determine the maturity value of your investment, use the periodic interest rate. Let's say you have a $1,000 12% certificate of deposit maturing in 3 years, paying all interest at maturity. Your CD compounds monthly, with a periodic rate of 1%. In January, your interest is $10, and it increases each month due to compounding.
- As of February, your principal becomes $1,010 after adding January's interest.
- February's interest is $10.10, and this pattern continues, with each month's interest contributing to the next period's calculation.
Using a Formula Instead of manual calculations, employ a formula for quick determination. The formula V = P x (1 + r)^n is utilized, where V represents the maturity value, P is the principal, r is the periodic interest rate, and n is the number of compounding intervals.
- For instance, with a 5-year, $10,000 CD compounded monthly at 4.80% annual rate, the maturity value V is $12,706.41.
Online Calculator Search Seek out an online maturity value calculator tailored to your investment type. Verify the calculator's credibility by using multiple tools for validation.
- Enter your investment details, including principal, interest rate, duration, and compounding frequency.
- Review the result for accuracy and consider cross-checking with another calculator to ensure consistency.
Evaluating Financial Instruments
Understanding Bond Features - Bonds serve as financial instruments for entities to raise capital. They come with a face value, representing the amount investors receive at maturity. Detailed in electronic bond certificates, they specify maturity dates and interest rates. For instance, a $10,000 6% IBM corporate bond due in 10 years is outlined in such certificates.
Maturity Date Consideration - Corporate bonds typically pay semi-annual interest, with the face value paid at maturity. Unlike some instruments like CDs, where both face value and interest are paid together at maturity. Interest calculation involves multiplying principal, interest rate, and time. For example, the annual interest for an IBM bond is calculated as ($10,000 X 6% X 1 year) = $600.
Implications of Compounding - Compounding adds complexity to interest calculations, as it involves earning interest on both the principal and prior interest. Determining periodic rates is crucial, especially when interest compounds regularly. For instance, with a 12% annual interest compounded monthly, the periodic rate is (12% / 12 months = 1%).
Calculator, Practice Problems, and Solutions
Utilize the Maturity Value Calculator
Exercises to Master Maturity Value Calculations
Solutions for Maturity Value Calculation Exercises
