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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.

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?


Solutions

Expert Solution

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

jeff jeffy answered 2 years ago
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