A $100 Face Value One-Year Risk-Free Discount Bond Is Priced

question 9

Multiple Choice

A $100 face value one-year risk-free discount bond is priced at $95.After one year,the two-year bond will be worth either $91 or $97.What (rounded to the nearest dollar) is the highest possible price of the two-year bond that is arbitrage-free?

• A)$91
• B)$92
• C)$95
• D)$97