You are a new analyst at Marshall Capital, and you are looking to purchase General Motors bonds for an investment. The bonds are currently selling for $1253 and have a yield to maturity of 8%. The bond will mature in 10 years and makes semiannual coupon payments.
a) What is the coupon rate of these bonds?
b) What is the current yield on this bond?
c) In a year, suppose that investors gain confidence in the market and believe that it has come less risky. This results in a shift in the market rate from 8% to 6%. What would you be willing to pay for the same bond? Is the bond selling at a discount of premium?