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

question 23

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.

---

Definitions:

Frustration-Aggression Hypothesis

A theory proposing that aggression is the result of blocking, or frustrating, a person's efforts to achieve a goal.

Desired Prize

An item or outcome that an individual or group aims to achieve, regarded as valuable or worthy of effort.

Shock

A sudden and intense emotional or physical reaction to an unexpected event or piece of information.

Intended Goal

A planned or desired outcome that an individual or group aims to achieve.