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Business, 14.04.2020 20:03 marisol56

Suppose that General Motors Acceptance Corporation just issued a bond with 10 years until maturity, a face value of $1000 and a coupon rate of 8% (annual payments). The yield to maturity on this bond when it was issued was 6%. a) What was the price of this bond when it was issued? b) Is this bond sold at a discount, at par, or at a premium (relative to the face value)? c) The yield to maturity increased to 9% immediately after it made its fourth coupon payment. What is the price of the bond immediately after it makes its fourth coupon payment (i. e., P4)? d) What is the annualized rate of return of your investment if you sell the bond immediately after it makes its fourth coupon payment (i. e., t=4)? e) If the inflation rate is 2% per year calculate the real annualized rate of return (i. e., the annualized rate of return that you got in part d but adjusted for inflation).

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