Final answer:
The statement about every bond being required to annualize its non-compounding coupon to APR is false. Bond coupon payments can vary in frequency, and the APR includes other factors. The interest rate for Ford's bond is 3%, and its price would decrease with a market rate hike from 3% to 4% due to decrease in its attractiveness.
Step-by-step explanation:
The statement that every bond pays a non-compounding coupon interest payment that must be annualized to the Annual Percentage Rate (APR) is false. While it is true that bonds are a form of debt and that the issuer owes the holders the principal plus interest as stipulated by the terms of the bond, the coupon payments of a bond do not always have to be annualized or be equivalent to the APR. Coupon payments can be issued at different frequencies - semi-annually, quarterly, or even monthly - and the APR is a calculation that includes not just the coupon rate, but also accounts for compounding periods and other finance charges.
Ford Motor Company issuing a five-year bond with a face value of $5,000 and an annual coupon payment of $150 means the interest rate is 3% ($150 is 3% of $5,000). In the event the market interest rate rises from 3% to 4% after the bond is issued, the value of the bond would decrease because the fixed coupon rate becomes less attractive compared to newer issues offering higher rates.
Lastly, the real-world price of a bond is assessed as the present value of a stream of future payments, which is influenced by market interest rates and the perceived risk of the borrower's ability to repay the loan.