Problem
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?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.