**Answer:**

**The effective annual rate is gotten to be 7.36%**

**Explanation:**

Given the par value = $2,000

Annual Coupon Rate = 6.51%

Semiannual Coupon Rate = 6.51% / 2 = 3.255%

Semiannual Coupon = 3.255% * $2,000 = $65.10

Current Price = 94.023% * $2,000 = $1,880.46

Time to Maturity = 13 years

Semiannual Period = 26

Let semiannual yield to maturity be s%

$1,880.46 = $65.10 x PVIFA(s%, 26) + $2,000 x PVIF(s%, 26)

**Making use of Ms excel and calculating we have;
**

N = 26

PV = -1880.46

PMT = 65.10

FV = 2000

s = 3.613%

Semiannual yield to maturity = 3.613%

The effective annual rate can be obtained thus;

**Effective annual rate = (1 + Semiannual YTM**** - 1
**

= (1 + 0.03613 - 1

= 1.0736 - 1

**= 0.0736 or 7.36%**

**Therefore the effective annual rate is gotten to be 7.36%**