Q. # 1- Suppose Ford Motor Company sold an issue of bonds with a 15-year maturity, a $1,000 par value, a 12 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 which serves the purpose of required return. At what price would the bonds sell? b. Suppose that, 2 years after the initial offering, the going interest rate had risen to 14 percent. At what price would the bonds sell?

Q. # 1- Suppose Ford Motor Company sold an issue of bonds with a 15-year maturity, a $1,000 par value, a 12 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 which serves the purpose of required return. At what price would the bonds sell? b. Suppose that, 2 years after the initial offering, the going interest rate had risen to 14 percent. At what price would the bonds sell?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 21P: Bond Valuation and Changes in Maturity and Required Returns Suppose Hillard Manufacturing sold an...

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Bond Valuation and Changes in Maturity and Required Returns Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a 1,000 par value, a 10% 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%. At what price would the bonds sell? b. Suppose that 2 years after the initial offering, the going interest rate had risen to 12%. At what price would the bonds sell? c. Suppose that 2 years after the issue date (as in Part a) interest rates fell to 6%. Suppose further that the interest rate remained at 6% for the next 8 years. What would happen to the price of the bonds over time?
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