What was the effective annual rate of return

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Four years ago, David bought a 10-year, 4% coupon bond (pays semi-annually) at a 3% discount to face value and he sold the bond today when its yield to maturity is 6.0%. He had reinvested all the coupons received during the four years at an APR of 3%. The face value of the bond is $1,000. What was the effective annual rate of return (EAR) on his investment? The correct answer is 2.46%, why?

Reference no: EM133327634

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