Suppose that General Motors Acceptance Corporation issued a bond with 10 years until maturity, a face value of $ 1 comma 000,
and a coupon rate of 7.2 % (annual payments). The yield to maturity on this bond when it was issued was 6.4 %. Assuming the yield to maturity remains constant, what is the price of the bond immediately before it makes its first coupon payment? Before the first coupon payment, the price of the bond is $ nothing. (Round to the nearest cent.)
1 answer:
Answer:
$1,053.48
Explanation:
For computing the price of the bond we use the Present value formula which is to be shown in the attachment below:
Given that,
Future value = $1,000
Rate of interest = 6.4%
NPER = 10 years - 1 year = 9 year
PMT = $1,000 × 7.2% = $72
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
After applying the above formula, the price of the bond is $1,053.48
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