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2 April, 17:08

The zero coupon bonds of JK Industries have a market price of $211.16, a face value of $1,000, and a yield to maturity of 7.39 percent. How many years is it until these bonds mature

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  1. 2 April, 18:13
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    It will take about 22 years until the bonds mature.

    Explanation:

    This can calculated as follows:

    BP = FV / (1 + r) ^n ... (1)

    Where;

    BP = Bond price = $211.16

    FV = Face value of $1,000

    r = Yield to maturity = 7.39%, or 0.0739

    n = number of years for the bond to mature = ?

    Substituting the values into equation (1) we have:

    211.16 = 1,000 / (1 + 0.0739) ^n

    211.16 [ (1.0739) ^n] = 1,000

    (1.0739) ^n = 1,000/211.16

    (1.0739) ^n = 4.73574540632696

    Log-linearizing the above, we have:

    nln (1.0739) = ln (4.73574540632696)

    n = ln (4.73574540632696) / ln (1.0739)

    = 1.55513913902672/0.0712968818820338

    = 21.8121620185272

    n = 22 years approximately

    Therefore, it will take about 22 years until the bonds mature.
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