When Time Warner, Inc., announced its intention to borrow about $500 million by issuing 20-year zero coupon (single-payment) notes, The wall Street Journal reported the following:

NEW YORK-Time Warner Inc. announced an offering of debt that could yield the company as much as $500 million.The media and entertainment giant said that it would offer $1.55 billion principal amount of zero-couponnotes due (in 20 years)through Merrill LynchZero-coupon debt is priced at a steep discount to principal, (which) is fully paid at maturity.A preliminary prospectusdidnt include the issue price and yield of the notes.

Assume Time Warner borrows funds at the beginning of Year 1 and pays $1.55 billion in a single payment at the end of Year 20.

a) Assume the yield of the notes is 6 percent per year, compounded annually. What initial issue proceeds will Time Warner, Inc., realize from issuing these notes? That is, how much cash will Time Warner receive on issuing the notes?

b) Assume the initial issue proceeds from these notes is $500 million. What it the annual yield on these notes?