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 7.0 % ​(annual payments). The yield to maturity on this bond when it was issued was 6.0 %. Assuming the yield to maturity remains​ constant, what is the price of the bond immediately before it makes its first coupon​ payment?

Answer 1

The price of the bond is $ 1,073.60

Step-by-step explanation:

The price of the bond can be determined using the pv formula in excel which is given below:

=-pv(rate,nper,pmt,fv)

rate is the yield to maturity on the bond which is 6% per annum

nper is the number of times the bond would pay coupon interest over the bond life which is 10

pmt is the amount of coupon interest payable by the bond which is 7%*$1000=$70

fv is the face value of the bond which is $1000

=-pv(6%,10,70,1000)

pv=$ 1,073.60

The price of the bond is $ 1,073.60