A newly issued bond has a 7 percent coupon with semiannual interest payments. The bondsare currently priced at par. The effective annual rate provided by these bonds must be:

A.3.5 percent.

B.Greater than 3.5 percent but less than 7 percent.

C.7 percent.

D.Greater than 7 percent.

E.Less than 3.5 percent.

Can you also provide explanation of the choices as well? Thanks