Question

Paul's Dogs Corp. has 8 percent coupon bonds making annual payments with a YTM of 7.6 percent. The current yield on these bonds is 7.95 percent. How many years do these bonds have left until they mature

Answer 1

1.74 years

Step-by-step explanation:

For computing the years, first we have to determine the present value which is shown below:

Let us assume the par value or future value be $1,000

So, PMT = 1,000 × 8% = $80

If the current yield is 7.95% so the present value would be

= $80 ÷ 7.95%

= $1,006.29

In this question, we use the NPER formula which is shown in the spreadsheet.

The NPER represents the time period.

Given that,

Present value = $1,006.29

Future value = $1,000

Rate of interest = 7.6%

PMT = $80

The formula is shown below:

= NPER(Rate,PMT,-PV,FV,type)

The present value come in negative

So, after solving this, the answer would be 1.74 years