LMN CO. HAS 12% COUPON $1,000 PAR VALUE BONDS MAKING ANNUAL COUPON...

20. LMN Co. has 12% coupon $1,000 par value bonds making annual coupon payments

with a YTM of 9%. The current yield on these bonds is 9.80%. How many years do

these bonds have left until they mature?

A) 9 years

B) 10 years

C) 13 years

D) 14 years

E) 15 years

Answer C

Current yield = 0.0980 = $120/P

0

P

0

= $120/.0980 = $1,224.49

P

0

= $1,224.49 = $120 x PVIFA(9%,n) + $1,000 / (1 + 9%)

n

Solving for n = 13 years.

Conceptual questions (2 points each)