Question

A General Power bond with $1000 par value carries a coupon rate of 8%, has 9 years until maturity, and sells at a yield to maturity of 7%. (Assume annual interest payments.) a. What interest payments do bondholders receive each year

Answer 1

a. $80

b. $1,065.15

Step-by-step explanation:

b. At what price does the bond sell?

a. Interest payment = Par value * Coupon rate

Interest payment = $1,000 * 8%

Interest payment = $80

b Price of bond = PV(Nper, pmt, Fv, YTM)

Nper = 9, Pmt= 1000*8% = 80, Fv =1,000, YTM= 7%

Price of bond = PV(9, 80, 1000, 7%)

Price of bond = $1,065.15