20

A well-known industrial firm has issued $1000 bonds with a 3% coupon interest rate paid semiannually. The bonds mature 10 years from now. From the financial pages of your newspaper, you learn that the bonds may be purchased for $800 each ($795 for the bond plus a $5 sales commission). What nominal and effective annual rate of return would you receive if you purchased the bond now and held it to maturity 10 years from now? With work shown please!