ABC Corporation is issuing some zero coupon bonds, which pay no interest. At maturity in 20 years they pay a face value of $10,000. The bonds are expected to sell for $3118 when issued.
(a) What is the effective interest rate an investor receives?
(b) A 1% fee (based on the face value) is deducted by the brokerage firm from the initial sales revenue. What is the effective annual interest rate paid by ABC Corporation?