1. BOND YIELDS. AN AT&T BOND HAS 10 YEARS UNTIL MATURITY, A COUPON
RATE OF 8 PERCENT, AND SELLS FOR $1,100
A. WHAT IS THE CURRENT YIELD ON THE BOND?
B. WHAT IS THE YIELD TO MATURITY?

2.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 7 PERCENT.
A. WHAT INTEREST PAYMENTS DO BOND HOLDERS RECEIVE EACH YEAR?
B. AT WHAT PRICE DOES THE BOND SELL?(ASSUME ANNUAL INTEREST PAYMENTS)
C. WHAT WILL HAPPEN TO THE BOND PRICE IF THE YIELD TO MATURITY FALLS TO 6 PERCENT?

Hi denise!
The basic formula for answering all the questions you ask is the bond
valuation formula. That is, that the price of a bond should be the
present value (discounted at the yield to maturity rate) of its coupon
and face value payments. The formula is:

P = C1/(1+i) + C2/(1+i)^2 + C3/(1+i)^3 + ... + (F+Cn)/(1+i)^n

where

P is the price of the bond
C1, C2, ..., Cn are the coupon payments
i is the yield to maturity
F is the face value of the bond
n is the number of periods to maturity


Question 1

A. I assume for this question that the face value of the bond is
$1,000. The current yield is simply the coupon payment divided by the
price of the bond. Since the coupon rate is 8%, the payment is 8% of
$1,000, which is $80. Now, since the price of the bond is $1,100,

Current Yield = 80/1100 = 0.072 = 7.2%

B. Using the notation I described above, we have for this problem that:

P = 1100
C1 = C2 = ... = Cn = 80
i = unknown
F = 1000
n = 10

Thus, with the bond price formula, we have one equation with one
unknown, thus we can find the value of i. In order to do it, use a
financial calculator. Here's an online yield to maturity calculator:

Yield to Maturity Calculator
http://www.investopedia.com/calculator/AOYTM.aspx

Entering the values for this problem, we get that the YTM is 6.6%


Question 2

I assume again that this bond has a face value of $1,000.

A. Since the coupon rate is 8%, bondholders get $80 per year

B. Again we must solve the previous equation with one unknown,
although the unknown this time is P rather than i (which in this case
we know to be 7%). Again, you can use a financial calculator to get
this. Here's an online bond price calculator:

Bond Price Calculator
http://www.investopedia.com/calculator/BondPrice.aspx

Filling in the known values (use 1000 for "redemption value", which is
the same as face value), we get that the price of this bond is
$1,065.15

C. Using 6% yield instead of 7% gives that the bond price rises to $1,136.03.


Google search terms
"bond price" calculator
"yield to maturity" calculator


I hope this helps!
Best wishes,
elmarto