According to the theory on bond pricing and duration, the methods of pricing term loans and bonds are fundamentally different due to the nature of each of these instruments. Term loans, for instance, are based on principal and interest amortised over the life of the loan, at the end of which the debt is zero. Bonds, on the other hand, do not have principal payments attached during the term of the issue. The principal is repaid in a balloon payment when the bond matures. The issue of duration is not dealt with directly in this paper because duration and time to maturity are only equal for a bond with a zero coupon.
Duration is however, directly related to the maturity of the debt and needs brief discussion.
Duration is a measure of the effective maturity of a financial instrument. However, the duration of a bond with a positive coupon interest rate is less than its time to maturity. For a bond, which has a current market price above its face value, duration increases with the time to maturity, but at a decreasing rate. For a bond with a current price below its face value, duration increases with term to maturity up to a point that is less than the term to maturity and thereafter declines. Complications arise out of duration and interest elasticity.