Final answer:
When Ford's bond price is quoted above par value, it signals that the market interest rates are lower than the bond's coupon rate. For Ford's issued bond at 3%, if market interest rates rise to 4%, the bond's value will decrease.
Step-by-step explanation:
If the bond price of Ford Motor Company's 9.3 percent bonds maturing on March 1, 2030, is quoted at 129.7, this indicates that the market interest rate for comparable bonds was lower than 9.3 percent. The price of a bond and the prevailing market interest rates move in opposite directions. When a bond's price is above par (100), it suggests that the bond is offering a coupon rate greater than the current market rates, thus investors are willing to pay a premium for it. In the scenario provided: a. The interest rate Ford is paying on the borrowed funds is 3% if they are issuing a five-year bond with a face value of $5,000 that pays an annual coupon payment of $150. b. If the market interest rate rises from 3% to 4% a year after Ford issues the bonds, the value of the bond will decrease. This is because the bond's fixed coupon payments are less attractive when new bonds in the market are offering higher yields.