Question

The Lo Sun Corporation offers a 5.9 percent bond with a current market price of $816.50. The yield to maturity is 8.21 percent. The face value is $1,000. Interest is paid semiannually. How many years until this bond matures

Answer 1

The number of years until this bond matures is approximately 0.719 years.

Step-by-step explanation:

The number of years until a bond matures can be calculated using the formula:

Years to Maturity = 1 / Number of Periods

Since this bond pays interest semiannually, the number of periods is twice the number of years until maturity.

To find the number of years, we need to find the number of periods. The yield to maturity is given as 8.21%, which means that the bond pays interest twice a year for a total of 8.21%.

Let's calculate the number of years until maturity:

Face Value = $1,000

Market Price = $816.50

Yield to Maturity = 8.21%

Coupon Rate = 5.9%

First, calculate the annual interest payment:

Annual Interest Payment = Face Value * Coupon Rate = $1,000 * 5.9% = $59

Next, calculate the number of periods:

Number of Periods = Yield to Maturity / Coupon Rate = 8.21% / 5.9% = 1.39

Finally, calculate the number of years until maturity:

Years to Maturity = 1 / Number of Periods = 1 / 1.39 = 0.719 years

Therefore, the bond will mature in approximately 0.719 years.