Question

7. Pablo just purchased a bond for $1,024.75. The bond has a face value of $1,000 and a 10 percent coupon rate, with coupon interest paid annually. Pablo’s broker told him that the yield to maturity on this bond is 9.5%; however, the broker did not tell him when the bond would mature. Calculate how many years this bond has left until it matures.

Answer 1

Information provided:

Face value= future value= $1,000

Present value= $1,024.75

Coupon rate= 10%

Coupon payment= 0.10*$1,000= $100

Interest arte= 8%/12= 0.6667% per month

Yield to maturity= 9.5%

The time of the bond  is computed by entering the below in a financial calculator:

FV= 1,000

PV= -1,024.75

I/Y= 9.5

PMT= 100

Press the CPT key and N to compute the time of the bond.

The value obtained is 7.

Therefore, it will take 7 years for the bond to mature.