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15 July, 03:58

The zero coupon bonds of Mark Enterprises have a market price of $394.47, a face value of $1,000, and a yield to maturity of 6.87 percent based on semiannual compounding. How many years is it until this bond matures?

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  1. 15 July, 04:15
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    7 years to matures the bond

    Explanation:

    F=face value=1000

    P=market price=bond price=394.47

    r=yield to maturity=6.87%=semi annually, yearly = 6.87*2=13.74 %

    T = years of maturity=?

    Formula = YTD = (Face value/Bond price) ∧1/T-1

    .1374 = (1000/394.47) ∧1/T-1

    1+0.1374=2.535∧1/T

    1.1374=2.535∧1/T

    1.1374=[ (1.1374∧7) ]∧1/T

    1=7/T

    T=7 years.
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