An FI Manager Purchases a Zero-Coupon Bond That Has Two

question 30

Multiple Choice

An FI manager purchases a zero-coupon bond that has two years to maturity.The manager paid $76.95 per $100 for the bond.The current yield on a one-year bond of equal risk is 12 percent, and the one-year rate in one year is expected to be either 16.65 percent or 15.35 percent.Either rate is equally probable. What is the yield to maturity for the two-year bond if held to maturity?

• A)27.99 percent.
• B)13.54 percent.
• C)29.95 percent.
• D)14.00 percent.
• E)11.53 percent.

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Definitions:

Operating Cash Flow

Cash generated by a company's normal business operations, indicating whether a company is capable of generating sufficient positive cash flow to maintain and grow its operations.

Contribution Margin

The difference between sales revenue and variable costs of a product or service, often expressed as a percentage of sales revenue.

Variable Cost

Expenses that fluctuate in direct proportion to the amount of production or output, like labor and materials.

Fixed Costs

Expenses that do not change in total regardless of changes in the volume of goods or services produced or sold.