3. Suppose Ford Motor Company issues a five year bond with a face value of $5,000 that pays an annual coupon payment of $150. a. What is the interest rate Ford is paying on the borrowed funds? b. Suppose the market interest rate rises from 3% to 4% a year after Ford issues the bonds. Will the value of the bond increase or decrease?
3. Suppose Ford Motor Company issues a five year bond with a face value of $5,000 that pays an annual coupon payment of $150. a. What is the interest rate Ford is paying on the borrowed funds? b. Suppose the market interest rate rises from 3% to 4% a year after Ford issues the bonds. Will the value of the bond increase or decrease?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![3. Suppose Ford Motor Company issues a five
year bond with a face value of $5,000 that
pays an annual coupon payment of $150.
a. What is the interest rate Ford is paying on
the borrowed funds?
b. Suppose the market interest rate rises from
3% to 4% a year after Ford issues the bonds.
Will the value of the bond increase or
decrease?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6888547e-3219-4df5-8129-55078b32462e%2F1d5ea3ec-5c23-4f82-a147-277bb0cf3b3f%2Fecerder_processed.jpeg&w=3840&q=75)
Transcribed Image Text:3. Suppose Ford Motor Company issues a five
year bond with a face value of $5,000 that
pays an annual coupon payment of $150.
a. What is the interest rate Ford is paying on
the borrowed funds?
b. Suppose the market interest rate rises from
3% to 4% a year after Ford issues the bonds.
Will the value of the bond increase or
decrease?
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