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    Price of bond

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    A General Motors bond carries a coupon rate of 8 percent, has 9 years until maturity, and sells at a yield to maturity of 7 percent. At what price does the bond sell? (Assume annual interest payments.) What will happen to the bond price if the yield to maturity falls to 6 percent?

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    Solution Preview

    Bond Pricing. A General Motors bond carries a coupon rate of 8 percent, has 9 years until maturity, and sells at a yield to maturity of 7 percent.

    At what price does the bond sell? (Assume annual interest payments.)

    To calculate the price of the bond we need to calculate / read from tables the values of
    PVIF= Present Value Interest Factor
    PVIFA= Present Value Interest Factor for an Annuity
    Price of bond= PVIF * Redemption value + PVIFA * interest payment per period

    PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%
    PVIF( n, r%)= =1/(1+r%)^n

    Price of bond
    Coupon rate= 8.000%
    Face ...

    Solution Summary

    Calculates bond price for different yields to maturity.

    $2.19

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