Answer : Correct option is 6.91%

Reason :

Using Financial Calculator

=RATE(nper,pmt,pv,fv)

where nper is Number of years to maturity i.e 4 * 2 = 8 (Multiplied by 2 As coupons are paid semiannually)

pmt is Interest payment i.e 1000 * 8% = 80 / 2 = 40 (Divided by 2 As coupons are paid semiannually)

pv is Current Market Price

= 1037.5 (1000 * 103.75%)

Note : pv should be taken as negative.

fv is face value i.e 1000

=RATE(8,40,-1037.5,1000)

therefore ,Yield to maturity is 3.455%(Semiannual)

Yield to maturity is 3.455%* 2 = 6.91%(Annual)