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?© BrainMass Inc. brainmass.com June 4, 2020, 1:07 am ad1c9bdddf
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.
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.