Question

Suppose that Ally Financial Inc. issued a bond with 10 years until maturity, a face value of $1,000, and a coupon rate of 11% (annual payments). The yield to maturity on this bond when it was issued was 5%. a. What was the price of this bond when it was issued? b. Assuming the yield to maturity remains constant, what is the price of the bond immediately before it makes its first coupon payment? c. Assuming the yield to maturity remains constant, what is the price of the bond immediately after it makes its first coupon payment? a. What was the price of this bond when it was issued? The price of this bond when it was issued was $ . (Round to the nearest cent.) b. Assuming the yield to maturity remains constant, what is the price of the bond immediately before it makes its first coupon payment? The price before the first payment is $ . (Round to the nearest cent.) C. Assuming the yield to maturity remains constant, what is the price of the bond immediately after it makes its first coupon payment? The price after the first payment is S . (Round to the nearest cent)

Answer 1

Answer A

Maturity Value of Bond	1000
Bond Tenure (Years)	10
PVIF @ 5% for 10 Years	0.613913
PV of Maturity Value (A)	613.9133
Annual Interest Payments	110
PVIFA @ 5% for 10 Years	7.72
PV of Interest Payments (B)	849.39
Price of The Bond as the time of Issue	1,463.30

Answer B

Maturity Value of Bond	1000
Bond Tenure (Years)	10
PVIF @ 5% for 9 Years	0.644609
PV of Maturity Value (A)	644.6089
Annual Interest Payments	110
PVIFA @ 5% for 10 Years (Beginning of the period)	8.11
PV of Interest Payments (B)	891.86
Price of The Bond as the time of Issue	1,536.47

Answer C

Maturity Value of Bond	1000
Bond Tenure (Years)	10
PVIF @ 5% for 9 Years	0.644609
PV of Maturity Value (A)	644.6089
Annual Interest Payments	110
PVIFA @ 5% for 9 Years (End of the period)	7.11
PV of Interest Payments (B)	781.86
Price of The Bond as the time of Issue	1,426.47