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9 February, 19:31

Excey Corp. has 10 percent coupon bonds making annual payments with a YTM of 9.5 percent. The current yield on these bonds is 9.85 percent. How many years do these bonds have left until they mature?

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  1. 9 February, 21:22
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    The number of years would be 4 years to maturity

    Explanation:

    Let the Face value (FV) be $1,000

    So, the PMT will be 10% of Fv

    PMT = 10% * $1,000

    PMT = $100

    Computing the Present Value (PV) of the bond as:

    PV = PMT / Current Yield

    where

    PMT is payment monthly, which the 10% of coupon bond, that is $10

    Current Yield will be 9.85% or 0.0985

    Putting the values above:

    PV = $100 / 0.0985

    PV = $1,015.22

    Now, computing the number of years using the Excel formula, which is as:

    =Nper (rate, pmt, pv, fv, type)

    where

    Nper is number of years

    rate is 9.5%

    pmt is $100

    pv is - $1,015.22

    fv is $1,000

    Putting the values above:

    =Nper (9.5%,100,-1015.22,1000,0)

    = 3.76 or 4 years
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