Backwater Corp. has 7 percent coupon bonds making annual payments with a YTM of
ID: 2623922 • Letter: B
Question
Backwater Corp. has 7 percent coupon bonds making annual payments with a YTM of 6.5 percent. The current yield on these bonds is 6.85 percent.
How many years do these bonds have left until they mature? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) SHOW your work.. I need to be able to solve this by hand/calculator.
Backwater Corp. has 7 percent coupon bonds making annual payments with a YTM of 6.5 percent. The current yield on these bonds is 6.85 percent.
Explanation / Answer
Hi,
Please find the detailed answer as follows:
Current Yield = Annual Interest Payment/Current Selling Price
6.85% = 70/Current Selling Price
Current Selling Price = 70/6.85% = 1021.90
PMT = 1000*7% = 70 (indicates annual interest payment)
Rate (I) = 6.5% (indicates YTM)
FV = 1000 (indicates the face value of bonds)
PV = 1021.90 (indicates the present valye of bonds)
Nper (N) = ? (indicates the period)
Period Left to Maturity = Nper(Rate,PMT,PV,FV) = Nper(6.5%,70,-1021.90,1000) = 5.32 Years
Answer is 5.32 Years.
Thanks.
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