7A-17. Assume that the City of Tampa sold an issue of $1,000 maturity value,tax exempt (muni), zero coupon bonds 5 years ago. The bonds had a 25-year maturity when they were issued, and the interest rate built intothe issue was a nominal 10 percent, but with semiannual compounding.The bonds are now callable at a premium of 10 percent over the accruedvalue. What effective annual rate of return would an investor whobought the bonds when they were issued and who still owns them earn ifthey were called today?a. 12.01%b. 10.25%
7A-17. Assume that the City of Tampa sold an issue of $1,000 maturity value,tax exempt (muni), zero coupon bonds 5 years ago. The bonds had a 25-year maturity when they were issued, and the interest rate built intothe issue was a nominal 10 percent, but with semiannual compounding.The bonds are now callable at a premium of 10 percent over the accruedvalue. What effective annual rate of return would an investor whobought the bonds when they were issued and who still owns them earn ifthey were called today?a. 12.01%b. 10.25%
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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7A-17. Assume that the City of Tampa sold an issue of $1,000 maturity value,
tax exempt (muni), zero coupon bonds 5 years ago. The bonds had a 25-
year maturity when they were issued, and the interest rate built into
the issue was a nominal 10 percent, but with semiannual compounding.
The bonds are now callable at a premium of 10 percent over the accrued
value. What effective annual
bought the bonds when they were issued and who still owns them earn if
they were called today?
a. 12.01%
b. 10.25%
c. 10.00%
d. 11.63%
e. 12.37%
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