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

question 97

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. Given the expected one-year rates in one year, what are the possible bond prices in one year?

• A)$85.22 and $86.25.
• B)$85.73 and $86.69.
• C)$85.22 and $86.69.
• D)$85.73 and $86.25.
• E)$83.35 and $84.65.

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Definitions:

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