Suppose Ford Motor Company sold an issue of bonds with a 10-year maturity, a $1,000 par value,

Question:

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?

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...