What nominal and effective annual rate of return

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Assume that the City of New York sold an issue of $1,000 maturity value, tax exempt (muni), zero coupon bonds 5 years ago. The bonds had a 25-year maturity when they were issued, and the interest rate built into the issue was a nominal 8.40 percent, but with semiannual compounding. The bonds are now callable at a premium of 10 percent over the accrued value. What nominal and effective annual rate of return would an investor, who bought the bonds when they were issued and who still owns them, earn if they are called today?

Reference no: EM131079536

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