High Noon Sun has a 5%, semiannual coupon bond with a current market price of €988.52.The bond has a par value of €1,000 and a yield to maturity of 5.29%.How many years is it until this bond
Matures?

Question

Quizplus · Accepted Answer

Using the bond pricing formula:
PV = (C/2)/(1+r/2)^t + (C/2)/(1+r/2)^(t+1) + ... + (C/2 + FV)/(1+r/2)^(n-1)
where PV = current market price (€988.52), C = coupon payment (5% of €1,000 = €50), r = yield to maturity (5.29%), FV = par value (€1,000), and n = number of semiannual periods (years) until maturity.
Solving for n using a financial calculator or Excel spreadsheet:
N = 9 periods or 4.5 years (since there are two semiannual periods per year). Therefore, the answer is B.

High Noon Sun Has a 5%, Semiannual Coupon Bond with a Current