Question

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

7.6%

​(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?

Answer 1

ANSWER :

Price of the Bond (P)= 1094

Price of the Bond (P) can be calculated using the following formula

   

Here

P = Price of the bond, (?)

C = face value * interest rate

  $1,000 * 7.6% = $76

i = yield to maturity(6.3%)

M = face value($1,000​)

N = number of years(10 year)

P =  ($76(1-(1+0.063)^-10) / 0.063) + $1,000(1+0.063)^-10

= ($76*7.255) + 543

= 551+ 543

= 1094