Final answer:
Amortizing a bond premium decreases the premium balance and the carrying value of the bond until it equals the face value at maturity. The interest rate for Ford's bond can be calculated as 3%. If market rates rise, the value of Ford's bond would decrease.
Step-by-step explanation:
Amortizing a bond premium will decrease the premium balance and decrease the carrying value of the bond. This process ensures that by the time the bond matures, the carrying value will equal the face value. As for Ford Motor Company's issued bond with a face value of $5,000 and an annual coupon payment of $150, the interest rate can be calculated by taking the annual payment and dividing it by the face value, which would be ($150 / $5,000) = 0.03 or 3%.
Now, if the market interest rate rises to 4%, the value of the bond will decrease. This is due to the fact that new bonds are likely to be issued at the higher current market rate, making the existing bond with a lower interest rate less attractive. Therefore, the bond's price would have to decrease to make it a competitive investment choice for potential buyers looking for rates that are closer to the new prevailing interest rate of 4%.