Question

Sure Tea Co. has issued 4.8% annual coupon bonds that are now selling at a yield to maturity of 5.50% and current yield of 5.4861%. What is the remaining maturity of these bonds? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

Answer 1

Answer:

The remaining maturity of these bonds is 76 years.

Explanation:

Where the face value of the bond is not specified, it is typically assumed as $1000. Hence,

Face value = $1000

Annual coupon payment = Face value x Annual coupon rate

                                          = $1000 x 4.8%

                                          = $48

Current yield = Annual coupon payment / Current price

Hence, Current price = Annual coupon payment / Current yield

                                   = $48 / 5.4861%

                                   = $874.938

Time to maturity = NPER (0.055, 48, -874,938, 1000,0)

                           = 76

Therefore, the remaining maturity of these bonds is 76 years.

Answer 2

Answer:

The period to maturity is 76 years

Explanation:

In order to calculate the remaining maturity period for the bond, the current price-the present value of the bond, is required and it calculated thus:

the current price of the bond =periodic coupon/current yield of the bond

periodic coupon is 4.8%* par value

standard par value is $1000

coupon =$1000*4.8%

             =$48

current yield is 5.4861%

the current price of the bond=$48/5.4861%

                                                =$874.94

The remaining maturity is computed thus:

nper(rate,pmt,-pv,fv)

where nper is the period to maturity

rate is 5.5% rate to maturity

pmt is $48

pv is $874.94

fv is $1000

=nper(5.5%,48,-874.94,1000)

=75.68

nper=period to maturity=76 years

Find attached excel file as well

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