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 7.3 % (annual payments). The yield to maturity on this bond when it was issued was 5.9 %. What was the price of this bond when it was issued?

Question

Nora Shelton

Business

13 April, 23:49

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 7.3 % (annual payments). The yield to maturity on this bond when it was issued was 5.9 %. What was the price of this bond when it was issued?

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Answers (1)

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Ramon Hampton · Answer 1

In order to find the price of the bond we need to know its years to maturity, its face value, the coupon rate and the yield to maturity. We can then use these numbers and put these values in a financial calculator to find the present value or price of the bond.

In this case the face value of the bond is 1,000, the years to maturity is 10, the coupon rate is 7.3% and the yield is 5.9%.

FV=1000

N=10

PMT = 0.073*1,000=73

YTM = 5.9

Put these values in a financial calculator and compute the PV

PV = 1,103.5

The present value of the bond is $1,103.5 which is also the price of the bond.