The bonds of Lapeer Airlines, Inc., are currently trading on the market at $1,119.34. They have a par value of $1000, make semi-annual coupon payments with a coupon rate of 6.4%, and a YTM of 4.6%. How many years until these bonds mature?

Number of years = 7.54 or 8 years

Explanation:

We know,

YTM =

Here,

I = Coupon payment

M = Par value

V = Market price

Given,

M = Par value = $1,000

V = Market price = $1,119.34

I = Coupon Payment = Par value × Coupon rate = $1,000 × 6.4% = $64

Since, it is a semi-annual payment = $64/2 = $32

YTM = 4.6%

Therefore, putting the value into the above formula, we can get

YTM =

or, 0.046 =

or, 0.046 =

or, 47.82988 = [Multiplying both the sides by 1,039.78]

or, 47.82988n = 32n - 119.34 [Multiplying both the sides by n]

or, 47.82988n - 32n = -119.34

or, -15.82988n = -119.34

or, n = (-119.34) ÷ (-15.82988)

Therefore, n = 7.54 years or almost 8 years.

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