A plan for remodeling the downtown area of the city of Steubenville, Ohio, required the city to issue $5 million worth of general obligation bonds for infrastructure replacement. The bond interest rate was set at 6% per year, payable quarterly, with the principal repayment date 30 years into the future. The brokerage fees for the transactions amounted to $100,000.
If the city received $4.6 million (before paying the brokerage fees) from the bond issue,
(a) what interest rate (per quarter) did the investors require to purchase the bonds and
(b) what are the nominal and effective rates of return per year to the investors?
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