Suppose Ford Motor Company sold an issue of bonds with a 10 year maturity, a $1,000 par value, a10 percent coupon rate, and semiannual interest payments.
a. Two years after the bonds were issues, 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?
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a) Use the following inputs for your financial calculator:
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