Term
What is Term
Contingent upon the unique situation, the articulation term can mean two or three things in finance. It can allude to the lifespan assigned to an asset or a liability, over which the value of the asset/liability is expected to either develop or shrink, contingent upon its inclination.
It can likewise allude to the period of time assigned to the lifespan of any investment. On account of debt, it could allude to the time it takes for all payments to be made by the borrower and received by the lender. On account of an equity investment, the time that passes between the acquisition of the equity and its sale or removal from holdings for another explanation.
A term can likewise determine a provision or nature of an agreement or contract, as in terms and conditions.
Figuring out a Term
The life of an asset or investment generally can be categorized as one of two fundamental categories: short-term and long-term. An investment can be held for an incredibly, short period of time — for example, a day trader could buy and sell a stock in no time. Then again, the life of an investment can be provided that the life of a real estate parcel, which can span several ages and pass through the hands of numerous investors.
Fixed income products generally add a third time period: intermediate. Short-term bonds are said to have a maturity, or term, of under a year. Intermediate bonds will go somewhere in the range of two to a decade in term. In conclusion, long-term bonds have a maturity anyplace past 10 years.
While assessing different securities, the term (or maturity) of a product can play a huge or unimportant job in evaluating the security's riskiness. For instance, the two and 10-year Treasury bond has no real premium for credit risk over the long haul, as the U.S. is practically default free between its short-term and long-term debts. Be that as it may, for a bond rated junk, there's a big difference in credit risk between a bond developing in two years and another developing in 10 years.
Illustration of Term
Jay is an informal investor. He buys a security on Monday and sells it on Tuesday. The term period of his holding for the security was one day. Jay likewise has life insurance which has a term period of 20 years, meaning it will mature in 20 years and Jay will get a payout from the insurance carrier. At long last, Jay lives in a rented loft. As indicated by the terms of his agreement with the landlord, he needs to pay rent by the fifth of every month.
Features
- The term (or maturity) of a product can play a critical job in evaluating a security's riskiness.
- It can allude to the time span of an investment, the provisions of an agreement or contract, and lifespan assigned to an asset or liability.
- Term can have different meanings in view of setting.
