In: Finance
Problem 7-25 Finding the Bond Maturity [LO2]
Excey Corp. has 7 percent coupon bonds making annual payments with a YTM of 6.4 percent. The current yield on these bonds is 6.75 percent.
How many years do these bonds have left until they mature?
Assume Par Value be $1000
Current Yield = Annual Coupon / Current Bond Price
0.0675 = [7%*$1000] / Current Bond Price
Current Bond Price = $70 / 0.0675 = $1037.04
To find the N, we need to put the following values in the financial calculator:
I/Y = 6.4;
PV = -1037.04;
PMT = 70;
FV = 1000;
Press CPT, then N, which gives us 8.10
So, bond maturity is 8.10 years