Question

General Electric has an outstanding bond that paid quarterlyinterest with an annual coupon of 4.25%, with a yield to maturity (required rate of return) of 3.85% and a maturity date of March 15, 2029

1. What is the price (as a percentage of principal) of the bond with a settlement date of March 15^th, 2019?  If the yield (required rate of return) of this bond goes up 75 basis points what would the new price be?

Answer 1

Take bond par value = $1,000

Coupon rate = 4.25% quarterly

Time to maturity = 10 years

YTM = 3.85%

Calculating PV,

Using TVM Calculation,

PV = [FV = 1000, T = 40, PMT = 10.625, I = 0.0385/4]

Present Value = $1,033.07

So Present value is 103.71% of Par value

If YTM = 5%

Calculating PV,

Using TVM Calculation,

PV = [FV = 1000, T = 40, PMT = 10.625, I = 0.05/4]

Present Value = $-941.26

So present value is 94.13% of Par Value.