Suppose Ford Motor Company sold an issue of bonds with a 10-year maturity, a $1,000 par value, a 10 percent coupon rate, and semiannual interest payments.
a. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 6 percent. At what price would the bonds sell?
b. Suppose that the interest rate remained at 6 percent for the next eight years. What would happen to the price of the Ford Motor Company bonds over time?