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 Summary
Calculates bond price for different yields to maturity.
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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%
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