Suppose you have a horizon of 10 years and bought a 10-year, 8% coupon bond at par (F = $1,000) that pays coupons semiannually and is callable at a call price of $1,100. Assume the yield curve is flat at an 8.16% effective yield

(or 4% semiannual yield) and remains constant for three years. At the end of year 3, suppose the yield curve drops to an effective yield of 5.0625% (2.5%

semiannual) and the issuer calls the bond. Assume you reinvest your investment funds in a new seven-year bond paying coupons semiannually and the yield curve remains flat at 5.0625%. What is your semiannual rate of return and effective annual rate of return for the call period? What is your semiannual and effective annual rate for the 10-year period? How do your rates compare to the YTM when you purchased the bond?