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20 March, 03:59

Suppose Ford Motor Company issues bonds with a face value of $5 comma 000 and an annual coupon payment of $200. What is the interest rate Ford is paying on the borrowed funds?

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  1. 20 March, 06:21
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    Interest rate = 4%

    Explanation:

    Given:

    Face value of bond = $5,000

    Annual coupon payment = $200

    Interest rate = ?

    Computation of interest rate on bond:

    Interest rate = (Annual coupon payment / Face value of bond) * 100

    Interest rate = ($200 / $5,000) * 100

    Interest rate = (0.04) * 100

    Interest rate = 4%

    Therefore, annual interest rate on bond is 4%
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