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Important information about Bond Pricing

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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 maturity 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 include with your response the formulas required for this problems, as well as the detailed explanation for how to solve them.

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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 maturity 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?

a) What interest payments do bondholders receive each year?

Annual Coupon payment= 80 =8%*1000

Answer: 80

b) At what price does the bond sell? (Assume annual ...

Solution Summary

The solution calculates the interest payments that bondholders receive each year, the price at which the bond sells and the change in the bond price if the yield to maturity falls.

$2.19
See Also This Related BrainMass Solution

Important information about Issue price of bonds

1) Amstop Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2007 at 97 plus accrued interest. The bonds are dated January 1, 2007, and pay interest on June 30 and December 31. What is the total cash received on the issue date?

2) On January 1, 2007, Bleeker Co. issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are below. What is the issue price of the bonds?

Present value of 1 for 8 periods at 6%.. .... .627
Present value of 1 for 8 periods at 8%.. .... .540
Present value of 1 for 16 periods at 3%.. .... .623
Present value of 1 for 16 periods at 4%.. .... .534
Present value of annuity for 8 periods at 6%.. .. 6.210
Present value of annuity for 8 periods at 8%.. .. 5.747
Present value of annuity for 16 periods at 3%.. 12.561
Present value of annuity for 16 periods at 4%......11.652

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