Bond Pricing . A General Motors bond carries a coupon rate of 8 percent, has 9 years until maturity, and sells at a yield to maturity of 9 percent.
Required
What will happen to the bond price if the yield to maturity falls to 7 percent?
| No. of years | Payment at the end of each year | PV of cash flows |
| 1 | $ 8.00 | $ 7.4766 |
| 2 | $ 8.00 | $ 6.9875 |
| 3 | $ 8.00 | $ 6.5304 |
| 4 | $ 8.00 | $ 6.1032 |
| 5 | $ 8.00 | $ 5.7039 |
| 6 | $ 8.00 | $ 5.3307 |
| 7 | $ 8.00 | $ 4.9820 |
| 8 | $ 8.00 | $ 4.6561 |
| 9 | $ 108.00 | $ 58.7448 |
| Present bond value or bond price | $ 106.5152 |
The bond price will increase to $106.5152.
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