Definition of Balloon Maturity

Balloon Maturity is a bond maturity schedule that requires the largest portion of the principal to be repaid on the last maturity date.

Applying "Balloon Maturity" to Securities Exams:

A bond issue may be structured to amortize the principal repayment at a set schedule over a number of years with a very large principal payment due upon maturity. This option may be attractive to both the lenders and the borrowers as it may offer benefits to each. It will allow the lender to be repaid at a faster rate and it will allow the borrower to have flexibility of lower payments in the earlier years of the loan.

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