Time to Maturity A bond issued by a corporation on June 15,2007,is scheduled to mature on June 15,2017.If today is December 16,2008,what is this bond's time to maturity? (Assume annual interest payments.)

Question

Quizplus · Accepted Answer

To calculate the time to maturity, we need to calculate the number of years and months between the issue date and maturity date, and then subtract the time that has passed since the issue date.

Maturity date: June 15, 2017
Issue date: June 15, 2007

Number of years between issue date and maturity date = 2017 - 2007 = 10 years
Number of months between issue date and maturity date = 10 years x 12 months per year = 120 months

Today's date: December 16, 2008
Number of years since issue date = 2008 - 2007 = 1 year
Number of months since issue date = 1 year x 12 months per year + 12 months (for the partial year) = 24 months

Time to maturity = Number of months between issue date and maturity date - Number of months since issue date
Time to maturity = 120 months - 24 months = 96 months
Time to maturity in years and months = 96 months divided by 12 months per year = 8 years and 0 months, or 8 years, 6 months (rounded up).

Therefore, the best choice is C) 8 years, 6 months.

Time to Maturity a Bond Issued by a Corporation on June