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In reaction to a slowdown in the economy, today the Federal Reserve Bank decided to decrease the Fed Funds rate by 0.25%. Suppose just yesterday
In reaction to a slowdown in the economy, today the Federal Reserve Bank decided to decrease the Fed Funds rate by 0.25%. Suppose just yesterday the Italian shoe company Donisi, Inc., issued bonds at par with par value of $100 million; an annually paid coupon of 5.5%; and 20 years to maturity. Answer the following two questions. 13. Assuming the bond's required rate of return decreased the full 0.25%, how much money did the bond's investors lose/gain due to the interest rate change? a. Lost $250,000.00 P5.50P5.5.25N P5.5P5.25P5.5 K5.5K5.25K5.50 Pm+=250,000N=20Fv=100,000,000kPTGain (b) Gained $250,000.00 e. Lost $3,050,555.65 (d) Gained $3,050,555.65 N=20 14. Use the Fed's rate reduction to calculate the elasticity of this bond issue
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