Question

1. 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 7.7 % (annual payments). The yield to maturity on this bond when it was issued was 6.2 %.What was the price of this bond when it was issued?

When it was issued, the price of the bond was $.......... (Round to the nearest cent.)

2. Your company currently has $ 1,000 ​par, 5.75 % coupon bonds with 10 years to maturity and a price of $ 1,089.

If you want to issue new​ 10-year coupon bonds at​ par, what coupon rate do you need to​ set? Assume that for both​ bonds, the next coupon payment is due in exactly six months.

You need to set a coupon rate of ..........​%. ​(Round to two decimal​ places.)

Answer 1

1

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =10

Bond Price =∑ [(7.7*1000/100)/(1 + 6.2/100)^k]     +   1000/(1 + 6.2/100)^10

k=1

Bond Price = 1109.36

Please ask remaining parts seperately, questions are unrelated