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# Calculating the Price of a Bond

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A general motors bond (face value of \$1000) carries a coupon rate of 8 percent, has 9 years until maturity, and sells at a yeild to maturity of 9 percent

a. what interest payments do bondholders receive each year?

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

c what will happen to the bond price if the yield to maturity falls to 7%?

#### Solution Preview

Variables given in the problem are:

Face value = \$1000
Coupon rate = 8%
N = 9
YTM = 9%

A. The interest payments bond holders will receive each year is the same as the coupon rate multiplied by the face value of the bond. Remember, a bond coupon is the amount of money investors receive at a compounding period for the money invested. So, for this problem the amount of interest received ...

#### Solution Summary

This solution includes detailed explanations for the answers given.

\$2.19