Question

. General Motors’s bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $ 1,000 par value, and the coupon rate is 8 percent. The bonds have a yield to maturity of 9 percent. What is the current market price of these bonds?

Answer 1

Answer:

Present value of the bonds 935.82

Explanation:

We have to calculate the present value of the coupon interest service

and the face value redeem at maturity.

$C \times \frac{1-(1+r)^{-time\times} }{rate} = PV$

C = 1000 x 0.8 = 80

rate = 9%

time = 10

$80 \times \frac{1-(1+0.08)^{-10} }{0.08} = PV$

PV = 513.41262

$\frac{Face}{(1 + rate)^{time} } = PV$

Face Value = 1000

rate = 0.09

$\frac{1000}{(1 + 0.09)^{10} } = PV$

PV = 422.410807

Present value of the bonds

annuity PV + face PV = market price

513.41262 + 422.410807 = 935.823427 = 935.82 market value