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.
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%.
a) What would you be willing to pay for the same bond?
b) Is the bond selling at a discount of premium?