Answer:
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
