Problem:
A newly issued bond has a 7 percent coupon with semiannual interest payments. The bonds are currently priced at par value. The effective annual rate provided by these bonds must be:
Answer cannot be determined from the information provided.
• Greater than 7 percent.
• 3.5 percent.
• 7 percent.
• Greater than 3.5 percent but less than 7 percent.
Please explain in detail and also provide step by step solution.