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