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%?
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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 ...
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