getting their way in how the company will be run?

Access for free at openstax.org
17 • Problems 433

37. Imagine that a local water company issued $10,000 ten-year bond at an interest rate of 6%. You are

thinking about buying this bond one year before the end of the ten years, but interest rates are now 9%.

a. Given the change in interest rates, would you expect to pay more or less than $10,000 for the bond?

b. Calculate what you would actually be willing to pay for this bond.

38. 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?

39. How much money do you have to put into a bank account that pays 10% interest compounded annually to

have $10,000 in ten years?
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