Answer:
12.41%
Explanation:
yield to call = {coupon + [(call value - market value)/n]} / [(call value - market value)/2]
0.05 = {150 + [(2,900 - market value)/8]} / [(2,900 - market value)/2]
0.05 x [(2,900 - market value)/2] = 150 + [(2,900 - market value)/8]
0.05 x (1,450 + 0.5MV) = 150 + 362.5 - 0.125MV
72.5 + 0.025MV = 512.5 - 0.125MV
0.15MV = 440
MV = 440 / 0.15 = $2,933.33
Claire's total returns = $150 (coupon) + ($2,960 - $2,933.33) = $176.67
Claire's return on investment = $176.67 / $2,933.33 = 6.02273%
effective annual yield = (1 + 6.02273%)² - 1 = 12.41%
