Intro A GM and a Ford bond both have 4 years to maturity, a $1,000 par value, a BB rating and pay interest semiannually. GM has a coupon rate of 6.3%, while Ford has a coupon rate of 6%. Part 1 IB Attempt 7/10 for 1 pts. The GM bond trades at 92.35 (percent of par). What is the yield to maturity (YTM)? .082 Correct The general bond pricing equation is: [- T F P (1 + r) Remember that prices are quoted as a percentage of par value. For this particular GM bond: N (1 + r) 1 L- to T 31.5 1,000 923.52 = (1+r) (1 + r) 8 We can use trial and error, a financial calculator or Excel (using the RATE() or YIELD functions) to find r: Using a financial calculator: N1/Y PV PMT FV -923,52 31.5 1,000 Inputs 8 Compute 4.3 Using Excel (don't enter the thousands separators): =RATE(nper, pmt, pv, fv) =RATE(8,31.5, -923.52, 1,000) riccepi Vuone. 31.5 1 923.52 = + 1,000 (1+r) (1 + r) We can use trial and error, a financial calculator or Excel (using the RATE() or YIELD() functions) to find r: Using a financial calculator: Inputs Compute NIY PV PMT FV 8 -923.52 31.5 1,000 4.3 Using Excel (don't enter the thousands separators): =RATE(nper, pmt, pv, fv) =RATE(8, 31.5, -923.52, 1,000) =0.043 Since YTM is always quoted as an APR with semiannual compounding, we need to double the period rate: YTM = 2 * 0.043 = 0.086 Part 2 IB Attempt 5/10 for 3.5 pts. What should be the price of the Ford bond (in $)? 1236.38 Try again Try again See solution (-2 pts.)