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?

Question

Business

Memphis Bernard

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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Answers (1)

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Mckenzie Proctor · Answer 1

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