High Noon Sun, Inc. has a 5%, semi-annual 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

To solve this problem, we can use the bond pricing formula:

Bond Price = (Coupon Payment / (1 + Yield)^Time) + (Coupon Payment / (1 + Yield)^(Time + 0.5)) + ... + (Coupon Payment + Par Value / (1 + Yield)^(Time + n))

Where:
- Coupon Payment = 0.05 * Par Value / 2 = $25 (since it's a semi-annual coupon bond)
- Yield = 5.29% / 2 = 0.0529 / 2 = 0.02645 (we divide by 2 because it's a semi-annual yield)
- n = Number of semi-annual periods until maturity

Plugging in the given values, we get:

$988.52 = ($25 / (1 + 0.02645)^1) + ($25 / (1 + 0.02645)^2) + ... + ($25 + $1,000 / (1 + 0.02645)^n)

To solve for n, we can use a financial calculator or an Excel spreadsheet. Using Excel's NPER function, we get:

=NPER(0.0529/2, -25, 1000, 988.52, 0)

This gives us n = 9 periods, or 4.5 years. Therefore, the answer is B.