A major car manufacturing firm issues a 20 year $1,000,000 bond at par. The bond...
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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 . 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%
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