the expected answer for part $ais1\mathrm{.}98\%$ and for part $b2\mathrm{.}08\%$

$7-32$

Mike buys a corporate bond with a face value of

A $$1000$ for $$800.$ The bond matures in $10$ years and

pays a coupon interest rate of $5\%.$ Interest is paid

every quarter.

$($a$)$ Determine the effective rate of return if Mike

holds the bond to maturity.

$($b$)$ What effective interest rate will Mike get if he

keeps the bond for only $5$ years and sells it for

$$900?$