Question

The zero coupon bonds of D&L Movers have a market price of $319.24, a face value of $1,000, and a yield to maturity of 8.45 percent. How many years is it until these bonds mature?

Answer 1

The zero coupon bonds of D&L Movers will mature in approximately 13.6 years. This is calculated using the present value formula for zero coupon bonds, incorporating the given market price, face value, and yield to maturity.

Step-by-step explanation:

To calculate how many years it is until the zero coupon bonds of D&L Movers mature, given their market price of $319.24, face value of $1,000, and yield to maturity of 8.45 percent, we can use the formula for the present value of a zero coupon bond:

P = F / (1 + r)^n

Where:

• P is the present market price of the bond ($319.24)
• F is the face value of the bond ($1,000)
• r is the yield to maturity (8.45% or 0.0845)
• n is the number of years to maturity

Rearranging the formula to solve for n, we get:

n = ln(F/P) / ln(1 + r)

Plugging in the values, we get:

n = ln(1000/319.24) / ln(1 + 0.0845)

n = ln(3.132/ln(1.0845)

n ≈ 13.6

Therefore, the zero coupon bonds will mature in approximately 13.6 years.