ANSWER NEEDED FOR PART C. Answers for A&B are included. A General Power bond wit

Question

ANSWER NEEDED FOR PART C. Answers for A&B are included. A General Power bond with a face value of $1,000 carries a coupon rate of 10.0%, has 9 years until maturity, and sells at a yield to maturity of 9.0%. (Assume annual interest payments.) a. What interest payments do bondholders receive each year? Interest payments $ 100.00 b. At what price does the bond sell? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price $ 1059.95 c. What will happen to the bond price if the yield to maturity falls to 8.0%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price will (Click to select)risefall by

Explanation / Answer

Price at YTM 9 % = 1059.95

Price at YTM 8% :

K = N          
BOND PRICE= [(Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1

                    K = 9   
BOND PRICE= [(10*1000/100)/(1 + 8/100)^k]     +   1000/(1 + 8/100)^9
                   k=1

=1124.94

Price increases by 1124.94 - 1059.95 = $64.99

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