Question

ose Ford Motor Company sold an issue of bonds with a 12-year maturity, a $1,000 par value, a 12% coupon rate. Two years after the bonds were issued, the going rate of interest on bonds such as these had risen to 14 percent. At what price would the bonds sell?

Answer 1

it will approximately be 4650 per value

Explanation:

well, if you know this rule then this problem will be fine to you

`n = o(1 + p) ^{ (k)/(m) }`

such that n represents the price you want in k years for every m years

and p is the percent of the interest or increase or decrease

and o is the original or initial quantity

i will help you understand the concept of this rule.for example when you have 100 cakes and you eat 20% per trial .Then, the first trial there is 80 cakes remain.the second trial

`80 - 80 * (20)/(100)`

there will be 64 cakes remain

now to get the general formula for it

`80(1 - (20)/(100) )`

`(100 - 100 * (20)/(100) )(1 - (20)/(100))`

`100(1 - (20)/(100) )(1 - (20)/(100) )`

`100(1 - (20)/(100) ) ^(2)`

now you get the concept of the formula

lets move to our problem

first you will this formula for 2 years

`1000(1 + (12)/(100) ) {}^(2)`

it will give you 1254.4

now you will consider this as the initial quantity in the formula for 10 years

`1254.4(1 + (14)/(100) ) {}^(10)`

it will give you the answer