A General Power bond with a face value of $1,000 carries a coupon rate of 9.4%,

Question

A General Power bond with a face value of $1,000 carries a coupon rate of 9.4%, has 9 years until maturity, and sells at a yield to maturity of 8.4%. (Assume annual interest payments.) What interest payments do bondholders receive each year? At what price does the bond sell? (Do not round intermediate calculations. Round your answer to 2 decimal places.) What will happen to the bond price if the yield to maturity falls to 7.4%?. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

Answer:a The interest payment is the coupon rate (c) as a percentage of the bond's par value ($1000).

Answer:b

Bond price=$94*PVIFA(8.4%,9)+$1000*PVIF(8.4%,9)

=$1061.44

Answer:c Bond price=$94*PVIFA(7.4%,9)+$1000*PVIF(7.4%,9)

=$1128.12

Price will increase by $66.68

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