Question

olmstead industry has 9.40% coupon bonds outstanding with a price of $1,023.58. interest is paid semiannually and the yield to maturity is 8.80%. the par is $1,000. how many years is it until these bonds mature?

Answer 1

4.752 years (approximately 4.8 years) The bond would maturity in 4.752 years.

Applying the yield-to-maturity formula

YTM is equal to C + (fv - pv) /n (fv + pv) /2.

9.40% of the par value is the coupon rate C.

= (9.40/100)× 1000

= $94

Face value (par value) is equal to $1,000.

Price = Pv = $1,023.58

Yield to maturity is equal to 0.0880.

n = how many years before maturity?

Using the formula above;

0.0880= 94 + (1000-1023.58)/n ÷ (1000+1023.58)/2

0.0880= 94 + (-23.58)/n ÷ (2023.58)/2

0.0880= 70 + (-23.58)/n ÷ 1011.79

94 - (23.58)/n = 0.0880 × 1011.79

94 - (23.58)/n =89.03752

-23.58 / n =89.03752 - 94

-23.58 / n = -4.96248 ( Cross multiply)

-23.58 = -4.96248n

Add -4.96248 to both sides.

n = 4.752

The maturity period for the bond is 4.752 years (approximately 4.8years)

To know more about the maturity calculation visit here :

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