Redesigned Computers has 6.5 percent coupon bonds outstanding with a current market price of $548. The yield to maturity is 13.2 percent and the face value is $1,000. Interest is paid annually. How many years is it until these bonds mature?

Question

Quizplus · Accepted Answer

The correct answer is A because the bond has a coupon rate of 6.5%, a current market price of $548, a yield to maturity of 13.2%, and a face value of $1,000. Using the bond pricing formula, we can solve for the number of years to maturity:$$Bond\space Price = \frac{C}{(r-y)} * (1 - \frac{1}{(1+y)^n}) + \frac{FV}{(1+y)^n}$$where:C = coupon paymentr = yield to maturityy = discount raten = number of years to maturityFV = face valueSubstituting the given values into the formula, we get:$$548 = \frac{65}{(0.132-y)} * (1 - \frac{1}{(1+y)^n}) + \frac{1000}{(1+y)^n}$$Solving for n using a financial calculator or spreadsheet, we get n = 17.84 years.

Redesigned Computers Has 6