Final answer:
The face value of the bonds issued by Bronco High School is $10 million. Ford Motor Company issues a bond with a 3% interest rate, and if the market rate increases to 4%, the value of the bond decreases.
Step-by-step explanation:
The face value of the bonds issued by Bronco High School is $10 million. This is determined by understanding that bond's face value is the amount owed to the bondholder at maturity, and it is also the reference amount the issuer uses to calculate interest payments. In the case provided, Bronco High School is paying interest semi-annually on a bond initially issued at a carrying value of $8,800,000. However, the bond's face value remains $10 million irrespective of the amortization of the bond's carrying value over time.
For the Ford Motor Company's scenario:
The interest rate that Ford is paying on the borrowed funds can be determined by dividing the annual coupon payment of $150 by the face value of the bond which is $5,000. This gives us an interest rate of 3% (150/5000 = 0.03).
If the market interest rate rises from 3% to 4%, the value of the bond will decrease. This happens because new bonds being issued will offer a higher interest rate, making existing bonds paying lower interest rates less valuable.