Question

. General Motors’s bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $ 1,000 par value, and the coupon rate is 8 percent. The bonds have a yield to maturity of 9 percent. What is the current market price of these bonds?

Answer 1

Present value of the bonds 935.82

Step-by-step explanation:

We have to calculate the present value of the coupon interest service

and the face value redeem at maturity.

`C * (1-(1+r)^(-time*) )/(rate) = PV\\`

C = 1000 x 0.8 = 80

rate = 9%

time = 10

`80 * (1-(1+0.08)^(-10) )/(0.08) = PV\\`

PV = 513.41262

`(Face)/((1 + rate)^(time) ) = PV`

Face Value = 1000

rate = 0.09

`(1000)/((1 + 0.09)^(10) ) = PV`

PV = 422.410807

Present value of the bonds

annuity PV + face PV = market price

513.41262 + 422.410807 = 935.823427 = 935.82 market value