# Question: show all work problems 1 and 2 are connected 1...

###### Question details

**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?

A. $1,222,368

B. $1,223,965

C. $1,000,000

D. $1,273,555

**2. **. If you bought the bond at issue
and held it to maturity, what is the effective annual rate (EAR)
that you earned?

A. 6%

B. 6.09%

C. 4%

D. 4.04%