You are given the following information about two 10 year bonds. Both bonds have face amount 100 and coupons payable semi-annually, with the next coupon due in 1/2-year.

Bond 1: Coupon rate 3% per year, price 88.03.

Bond 2: Coupon rate 11% per year, price 137.97.

Find the annual effective yield rate for a 10-year zero-coupon bond.

Answer Choices: (A) 5.8% (B) 3.7%