Question: show all work problems 1 and 2 are connected 1...
SHOW ALL WORK. PROBLEMS 1 and 2 ARE CONNECTED
1. A major car manufacturing firm issues a 20 year $1,000,000 bond at par. The bond pays a 6% (APR) semiannual coupon. 5 years later, the Federal Reserve Board cuts the fed funds rate, causing interest rates for similar firms to fall to 4% (APR). What is the new bond price?
2. . If you bought the bond at issue and held it to maturity, what is the effective annual rate (EAR) that you earned?