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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%?

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    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 ...

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