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

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

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, 2 years after the initial offering, the going interest rate had risen to 12 percent. At what price would the bonds sell? c. Suppose that the conditions in part a existed—that is, interest rates fell to 6 percent 2 years after the issue date. Suppose further that the interest rate remained at 6 percent for the next 8 years. What would happen to the price of the Ford Motor Company bonds over time?