Question

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 7% (annual payments). The yield to maturity on this bond when it was issued was 6%. What was the price of this bond when it was issued? Complete the steps below using cell references to given data or previous calculations. In some cases, a simple cell reference is all you need. To copy paste a formula across a row or down a column, an absolute cell reference or a mixed cell reference may be preferred. If a specific Excel function is to be used, the directions will specify the use of that function. Do not type in numerical data into a cell or function. Instead, make a reference to the cell in which the data is found. Make your computations only in the blue cells highlighted below. In all cases, unless otherwise directed, use the earliest appearance of the data in your formulas, usually the Given Data section. Maturity (years) Face value Coupon rate Yield to maturity 10 $ 1,000 7% L6% Coupon Bond price

Answer 1

1) The coupon will be $70 and the bond price will be as follows: We will use the PV formula in excel where we have the 4 out of the 5 required values which are rate = 6%, NPER = 10 years, FV = 1000 and PMT = Coupon = 70 so the bond price is;

Particulars	Amount
Interest Rate	6.00%
Coupon Payment	-70
No of Years	10
Future Value/Maturity Value	-1,000.00
Present Value	1,073.601

We get the value of the bond as $1073.601.

2) We will use the same PV formula to get the present value of the bond with different yield to maturities

BOND A:

Particulars	Amount
Interest Rate	6.00%
Coupon Payment	0
No of Years	15
Future Value/Maturity Value	$-100.00
Present Value	$41.727
Particulars	Amount
Interest Rate	5.00%
Coupon Payment	0
No of Years	15
Future Value/Maturity Value	$-100.00
Present Value	$48.102

change in price of bond if the yield changes from 6% to 5% an increase of  $6.375

BOND B:

Particulars	Amount
Interest Rate	6.00%
Coupon Payment	0
No of Years	10
Future Value/Maturity Value	$-100.00
Present Value	$ 55.839
Particulars	Amount
Interest Rate	5.00%
Coupon Payment	0
No of Years	10
Future Value/Maturity Value	$ -100.00
Present Value	$ 61.391

change in price of bond if the yield changes from 6% to 5% an increase of  $5.552

BOND C:

Particulars	Amount
Interest Rate	6.00%
Coupon Payment	-4
No of Years	15
Future Value/Maturity Value	$ -100.00
Present Value	$ 80.576
Particulars	Amount
Interest Rate	5.00%
Coupon Payment	-4
No of Years	15
Future Value/Maturity Value	$-100.00
Present Value	$ 89.620

change in price of bond if the yield changes from 6% to 5% an increase of  $9.044

BOND D:

Particulars	Amount
Interest Rate	6.00%
Coupon Payment	-6
No of Years	10
Future Value/Maturity Value	₹ -100.00
Present Value	₹ 100.000
Particulars	Amount
Interest Rate	5.00%
Coupon Payment	-6
No of Years	10
Future Value/Maturity Value	₹ -100.00
Present Value	₹ 107.722

change in price of bond if the yield changes from 6% to 5% an increase of  $7.722