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What will be your effective annual return

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Reference no: EM132122249

(a) Suppose you purchase a 3-year zero-coupon bond with face value of $1000 and a price of $850. What is the bond's yield? If you hold the bond to maturity, what will be your effective annual return?

(b) Now suppose you purchase a 3-year bond with face value of $1000, a 7% annual coupon, and a price of $975. Is the yield of this bond to maturity greater or less than for the bond above?

Reference no: EM132122249

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