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Appropriate Value of a New Corporate Bond

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Ford is about to issue a new corporate bond, face value = $1,000, coupon rate=8%, maturity = 4 years (annual coupon payments). You know that a very similar bond issued by GM is already trading in the bond market with price = $1020, face value = $1,000, coupon rate = 6% and maturity = 5 years (annual coupon payments). What would be the appropriate value of Ford's new corporate bond?

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Solution Summary

This solution solution shows the steps for determining a corporate bond's appropriate value given the current bond market price, face value, coupon rate, and maturity.

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The appropriate value would be the present value of interest and principal discounted at the yield to maturity (YTM). We use the GM bond to calculate the YTM.
YTM ...

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