A Corporation offers a 5.8 percent bond with a current market price of $823.50. The yield to maturity is 8.18 percent. The face value is $1,000. Interest is paid semiannually. How many years until this bond matures

Explanation:

First of all, as the interest is paid semi-annually, we calculate semi-annual interest rate by dividing yield to maturity by the number of periods in a year (2).

Semi-annual interest rate = 0.0818 / 2 = 0.0409

Now using the following formula

where,

YTM = 0.0409 (semi-annually)

Face Value = $1000

Current Price = $823.5

n = Number of semi-annual periods

Taking natural log on both sides,

Hence, semi-annual periods are 4.837. Therefore, the bond will mature in approximately (4.837/2) 2.4185 years.

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