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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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    Solution Preview

    See attached file

    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

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