Question

Suppose that General Motors Acceptance Corporation issued a bond with 10 years until​ maturity, a face value of $ 1 comma 000​, and a coupon rate of 7.2 % ​(annual payments). The yield to maturity on this bond when it was issued was 6.4 %. Assuming the yield to maturity remains​ constant, what is the price of the bond immediately before it makes its first coupon​ payment? Before the first coupon​ payment, the price of the bond is ​$ nothing. ​ (Round to the nearest​ cent.)

Answer 1

$1,053.48

Step-by-step explanation:

For computing the price of the bond we use the Present value formula which is to be shown in the attachment below:

Given that,

Future value = $1,000

Rate of interest = 6.4%

NPER = 10 years - 1 year = 9 year

PMT = $1,000 × 7.2% = $72

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

After applying the above formula, the price of the bond is $1,053.48