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

question 85

Multiple Choice

An FI manager purchases a zero-coupon bond that has two years to maturity.The manager paid $826.45 per $1,000 for the bond.The current yield on a one-year bond of equal risk is 9 percent, and the one-year rate in one year is expected to be either 11.60 percent or 10.40 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)$912.40 and $922.32.
• B)$857.27 and $866.93.
• C)$734.90 and $751.56.
• D)$896.06 and $905.80.
• E)$802.92 and $820.47.

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Definitions:

Behavior Modification

A therapy approach that seeks to change undesirable behaviors through reinforcement strategies and conditioning.

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Internal struggles rooted in the unconscious mind, often stemming from repressed feelings or unresolved childhood experiences.

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The power or right of an individual to act, speak, or think as one wants without hindrance or restraint.

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Internal struggles that stem from desires, impulses, or memories that are repressed or unacknowledged and exist below the level of conscious awareness.