Question

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?

Answer 1

Interest rate = 4%

Step-by-step 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%