A bond is for sale in the secondary marketplace for $990. The bond contract stipulates that the bondholder (from this point on) will be paid $5 in six months, and $1005 in one year.

1. Assuming the issuer does not default, which is closest to the native compound interest rate (r) of this bond for someone who purchases the bond today, in semi-annual time periods?

1.0076%

0.8072%

2.0079%

2. Using your answer for r above, what is the Yield To Maturity (YTM) of this bond for someone who purchased the bond at today's asking price? Hint: YTM = EAIR.