Question

The Lo Sun Corporation offers a 6.1 percent bond with a current market price of $781.50. The yield to maturity is 8.43 percent. The face value is $1,000. Interest is paid semiannually. How many years until this bond matures

Answer 1

Answer:

t = 18 93 years

Explanation:

Given Data;

Yield to maturity (r) = 0.0843/2 =  0.04215

Current market price = $781.50

Bond = 6.1%

Face value = $1,000

Pv = (%bond * fv/2) * (1-1/(1+r)^2t)/r+fv/(1+r)^2t

Where pv is the current value, fv is the face value, t is the time and r is the yield

Substituting into the formula, we have

781.50 = (0.06*1000/2) * (1-1/(1+0.04215)^2t) /0.04215+   1000/(1+0.04215)^2t

781.50 = 30.5 * (1 - 0.96^2t) /04215 + 959.55^2t

781.50 = 1.22^2t /0.04215 + 959.55^2t

After simplifying further,

t = 18 93 years