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)

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

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

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 ______