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?

Interest rate = 4%

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%