EBK CFIN
6th Edition
ISBN: 9781337671743
Author: BESLEY
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 6, Problem 16PROB
Summary Introduction
To calculate: Current yield and
Introduction: Bond refers to the financial instruments that are issued to raise funds from the public for a fixed maturity period and a fixed interest rate is paid. The capital gain yield on the bond can be determined by subtracting the previous market price and the current market and dividing the arrived value by the previous market price of the bond.
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Suppose that Ally Financial Inc. issued a bond with 10 years until maturity, a face value of $1,000, and a coupon rate of 10% (annual payments). The yield to maturity
on this bond when it was issued was 4%.
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…
Suppose that Ally Financial Inc. issued a bond with 10 years until maturity, a face value of $1,000, and a
coupon rate of 8% (annual payments). The yield to maturity on this bond when it was issued was 10%.
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?
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 7.1% (annual
payments). The yield to maturity on this bond when it was issued was 6.4%. Assuming the yield to maturity remains constant, what is the price of the bond
immediately after it makes its first coupon payment?
After the first coupon payment, the price of the bond will be $. (Round to the nearest cent.)
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