Moonhigh,Inc. has a 6%,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 6.31%. How many years is it until this bond matures?

Question

Quizplus · Accepted Answer

The bond has a par value of $1,000, a semiannual coupon rate of 6%, and a yield to maturity of 6.31%. Since the coupon payments are semiannual, the coupon payment would be $30 ($1,000 x 6% x 1/2) per half year. Using the bond pricing formula, we can solve for the number of periods until maturity:

$988.52 = ($30 / (1 + 0.03155)^1) + ($30 / (1 + 0.03155)^2) + ... + ($1,030 / (1 + 0.03155)^20)

Solving for the number of periods (in half years), we get:

n = 8.56 half years

Therefore, the number of years until maturity is:

n / 2 = 4.28 years

Thus, the best choice is B.