Question

Evaluate the promised YTM for the bonds issued by Ford (F) and General Motors (GM). You may assume that interest is paid semiannually. Also, round the number of compounding periods to the nearest six months.

1. Calculate the annualized yield to maturity as the cost of debt.

2.Find the cost of debt for given credit rating, which can also use the cost of debt.

Ford Motor Company

Coupon: 6.3750%

Maturity: 02/01/2029

Rating: Baa1/BBB?

Price: 92.7840

General Motors Corporation

Coupon: 8.375%

Maturity: 07/15/2033

Rating: Baa2/BBB?

Price: 106.1250

Answer 1

The first screenshot shows the formula and the rest two screenshots shows the calculations in excel:

So, YTM for Ford bonds=3.68% and GMC bonds= 3.84%