Assume that the State of Florida sold tax-exempt, zero coupon bonds with a $1,000.00 maturity value 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 4.40%, compounded semiannually. The bonds are now callable at a premium of 4.00% over the accrued value. What effective annual rate of return would an investor who bought the bonds when they were issued and who still owns them earn if they were called today? Do not round your intermediate calculations.
A. 5.75%
B. 3.95%
C. 5.27%
D. 6.48%
E. 5.01%
Answer: C
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