1a) You purchased a semi-annual interest coupon bond one year ago with 6 years remaining to maturity at the time of purchase. The coupon interest rate is 10% and par value is $1,000. At the time you purchased the bond, the yield to maturity was 8%. If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 7%, your annual total rate of return on holding the bond for that year would have been _________ .

1b) HGK just issued some zero-coupon bonds. The bonds have a par value of $1,000, mature in 2 years, and were sold at a price of $825. The firm's marginal tax rate is 40%. What is the annual after-tax cost of this debt? Assume semi-annual payments in your calculations.