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 72% (annual payments)

Finance Aug 05, 2020

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 72% (annual payments). The yield to maturity on this bond when it was issued was 6.1% What was the price of this bond when it was issued? When it was issued, the price of the bond was $(Round to the nearest cent) Sog 3:46 AM 8/4/2020 da ENG Desktop Enter your answer in the answer box and then click Check Answer SS E e e I

Expert Solution

Bond's Market Value = PV of Coupon Payment + PV of Maturity Value

= [Periodic Coupon Payment * {(1 - (1 + r)^-n) / r}] + [Face Value / (1 + r)^n]

= [{7.2%*$1,000} * {(1 - (1 + 0.061)^-10) / 0.061}] + [$1,000 / {1 + 0.061}^10]

= [$72 * {0.4468 / 0.061}] + [$1,000 / 1.8078]

= [$72 * 7.3253] + $553.15

= $527.42 + $553.15 = $1,080.58

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