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A Ford bond carries a coupon rate of 10%, payable semi-annually and has 15 years until maturity. It has a yield to maturity (YTM /yield rate) of 8%.
a. What price does the bond sell for?
b. What will the price be if the bond yield rises to 10%?
c. If Ford significantly reduced the amount of debt on its balance sheet, what would likely happen to the price of the bond? Explain.
d. If Ford incurred a considerable amount of debt what would happen to the coupon rate? Explain.
e. Give two reasons that could cause the yield rate to increase on a bond.
f. As a bond trader what is your strategy when purchasing bondswhat are you betting on?
g. Would Ford want to have a higher or lower yield on its bond when it issues the bond? Explain (like you are talking to your dim-witted uncle).
h. The yield on Ford bonds increased 0.5% the day before they were to be sold to the market. Would the CFO be happy or sad? Explain
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