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(5 pts) 25. The present value of the following cash flow stream is $5,933.86 when discounted at 11 percent annually. What is the value of the missing cash flow? Year $2,000 1,750 1,250 4
Problems 9 and 10 are connected. 9. 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 10. 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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