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A General Power bond carries a coupon rate of 9.4%, has 9 years until maturity, and...

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Finance

A General Power bond carries a coupon rate of 9.4%, has 9 yearsuntil maturity, and sells at a yield to maturity of 8.4%. (Assumeannual interest payments.)

a. What interest payments do bondholders receive each year?

Interest payments:______

b. At what price does the bond sell? (Do not roundintermediate calculations. Round your answer to 2 decimalplaces.)

Price:_________

c.What will happen to the bond price if theyield to maturity falls to 7.4%? (Do not round intermediatecalculations. Round your answer to 2 decimal places.)

Price will ______ by ______

Answer & Explanation Solved by verified expert
4.5 Ratings (777 Votes)

a

Interest = coupon rate*par value = 0.094*1000=94

b

                  K = N
Bond Price =? [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =9
Bond Price =? [(9.4*1000/100)/(1 + 8.4/100)^k]     +   1000/(1 + 8.4/100)^9
                   k=1
Bond Price = 1061.44

c

                  K = N
Bond Price =? [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =9
Bond Price =? [(9.4*1000/100)/(1 + 7.4/100)^k]     +   1000/(1 + 7.4/100)^9
                   k=1
Bond Price = 1128.12

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Transcribed Image Text

A General Power bond carries a coupon rate of 9.4%, has 9 yearsuntil maturity, and sells at a yield to maturity of 8.4%. (Assumeannual interest payments.)a. What interest payments do bondholders receive each year?Interest payments:______b. At what price does the bond sell? (Do not roundintermediate calculations. Round your answer to 2 decimalplaces.)Price:_________c.What will happen to the bond price if theyield to maturity falls to 7.4%? (Do not round intermediatecalculations. Round your answer to 2 decimal places.)Price will ______ by ______

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