Look back at Table 7-4, and examine the Albertsons and Ford Motor Co. bonds that mature in

Question:

Look back at Table 7-4, and examine the Albertson’s and Ford Motor Co. bonds that mature in 2031.

a. If these companies were to sell new $1,000 par value long-term bonds, approximately what coupon interest rate would they have to set if they wanted to bring them out at par?

b. If you had $10,000 and wanted to invest in the Ford bonds, what return would you expect to earn? What about the Albertson’s bonds? Just based on the data in the table, would you have more confidence about earning your expected rate of return if you bought the Ford or Albertson’s bonds? Explain.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...