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Homework answers / question archive / Sure Tea Co
Sure Tea Co. has issued 7.6% annual coupon bonds that are now selling at a yield to maturity of 10.50% and current yield of 10.25%. What is the remaining maturity of these bonds? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
We can calculate the time to maturity by using the following formula in excel:-
=nper(rate,pmt,-pv,fv)
Here,
Nper = Time to maturity
Rate = 10.50%
Pmt = Coupon payment = $1,000*7.6% = $76
PV = $741.46
FV = $1,000
Substituting the values in formula:
= nper(10.50%,76,-741.46,1000)
= 27.54 years Or 28 years
Working note:-
Current yield = Annual coupon payment / Price of bond
10.25% = $1,000 * 7.6% / Price of bond
Price of bond = $76 / 10.25%
= $741.46
