1. A Ford bond carries a coupon rate of 4%, payable semi-annually and has 20 years until maturity. It has a yield to maturity (YTM /yield rate) of 10%.

a. Would this bond sell above or below $1,000? Explain.

b. What will happen to the price if the bond yield rises to 12%?

c. If Ford significantly increased the amount of debt on its balance sheet, what would likely happen to the price of the bond? Explain.

d. If Ford defaulted on an interest payment, what would likely happen to the coupon rate? Explain.

e. Give two specific business reasons specific to Ford that could cause the yield rate to decrease on the Ford bond.

f. As a bond trader, what is your strategy when purchasing Ford bondswhat are you betting on?

g. The yield on Ford bonds decreased 0.5% the day before they were to be sold to the market. Would the CFO of Ford be happy or sad? Explain.