Question

Suppose that General Motors Acceptance Corporation issued a bond with 10 years until​ maturity, a face value of$1,000​, and a coupon rate of 7.3% (annual payments). The yield to maturity on this bond when it was issued was 6.1%. Assuming the yield to maturity remains​ constant, what is the price of the bond immediately before it makes its first coupon​ payment?

Answer 1

Information provided:

Face value= future value= $1,000

Time= 10 years - 1 years = 9 years

Coupon rate= 7.3%

Coupon payment= 0.073*1,000= $73

Yield to maturity= 6.1%

The price of the bond is calculated by computing the present value of the bond.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

PMT= 73

N= 9

I/Y= 6.1

Press the CPT key and PV to calculate the present value of the bond.

The value obtained is 1,081.27.

Therefore, the price of the bond before its first coupon payment is $1,081.27.