For the following questions, assume the normal case that coupon payments are semi-annual.

a. What is the yield to maturity on a

17-year,

7%

coupon bond if the bond is currently selling for $1,000?

b. For the bond above, suppose that immediately after purchase market rates change to

4.40%.

If you hold the bond for

3

years and then sell it, what is your effective annual return on this investment?

a. The YTM is

7.07.0%

(enter response rounded to decimal places; i.e., x.xx%)

b. Your effective annual return is

5.835.83%

(enter response rounded to decimal places; i.e., x.xx%)

Please be more clear in solving EAR.