The convention is to double it and call the result the bond's yield to maturity. This method ignores the effect of compounding semi-annual YTM, and the YTM calculated in this way is called a bond-equivalent yield (BEY).
However, yields of a semi-annual-pay and an annual-pay bond cannot be compared directly without conversion. This conversion can be done in one of the two ways:
A. BEY is the annual yield calculated from semi-annual, quarterly, or monthly discount-bond or note yields.
BEY will be less than the real return as (1 + x)2 is greater than 1 + 2x.
A. equal to the effective annual yield
The bond equivalent yield for a semi-annual pay bond is equal to double the semi-annual yield to maturity.
2[(1.07)0.5 -1] = 6.8826%
A. The annual-pay bond is divided by two for the semi-annual equivalent.
A. 360-day discount
C is the only possible answer, as both A and B are lower than 4.0%. By design, a money market discount rate understates the rate of return. The bond equivalent yield has to be higher than 4.0%.