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

question 81

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. If the manager buys a one-year option with an exercise price equal to the expected price of the bond in one year, what will be the exercise price of the option?

• A)$862.10.
• B)$743.23.
• C)$900.93.
• D)$811.70.
• E)$917.36.

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Definitions:

Goodwill

An intangible asset that represents the value of a company's brand name, solid customer base, good customer relations, good employee relations, and any patents or proprietary technology.

Intangible Assets

Assets that cannot be physically touched or held, such as patents, trademarks, and goodwill.

Tangible Assets

Physical and material assets, such as machinery, buildings, and land, that have a value and can be seen and touched.

Comparable Business

A company or business model similar in size, scope, or industry to another, used for benchmarking or competitive analysis.