What is the price of a General Motors bond?
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A General Motors bond carries a coupon rate of 8 percent, has 9 years until maturity, and sells at a yield to matruity of 7 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 6 percent?
Please show all work. Thanks!
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Solution Summary
The solution explains how to calculate the price of a bond and the change in price with a change in interest rate.
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a. The interest payments are related to the coupon rate and not to the YTM. Assuming the face value of the bond is $1000, the coupon rate is 8%, the interest amount is 1000X8%=$80
b. The price that a bond sells is the present value of the cash flows. The cash flows are the interest payments and the principal ...
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