Question

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 7.7 % ​(annual payments). The yield to maturity on this bond when it was issued was 6.3 %. What was the price of this bond when it was​ issued? When it was​ issued, the price of the bond was ​$ nothing. ​ (Round to the nearest​ cent.)

Answer 1

The price of the bond when it was issued was $1101.59

Step-by-step explanation:

To calculate the price of the bond, we need to first calculate the coupon payment per period. We assume that the interest rate provided is stated in annual terms.

Coupon Payment (C) = 1000 * 0.077 = $77

Total periods (n)= 10

r = 6.3%

The formula to calculate the price of the bonds today is attached.

Bond Price = 77 * [( 1 - (1+0.063)^-10) / 0.063] + 1000 / (1+0.063)^10

Bond Price = $1101.592357 rounded off to $1101.59

The price of the bond when it was issued was $1101.59