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

question 54

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 exercise price of the option,what premium should be paid for this option?

• A)$2.2339 per $1,000 of bond option purchased.
• B)$4.0275 per $1,000 of bond option purchased.
• C)$2.2752 per $1,000 of bond option purchased.
• D)$2.2156 per $1,000 of bond option purchased.

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Definitions:

Differentiation

The process of distinguishing or discriminating between two or more things or concepts, often leading to a better understanding or categorization.

Fusion

The process or result of joining two or more things together to form a single entity, often used in the context of nuclear physics or music.

Triads

A group of three, often referring to chords in music, social dynamics, or structures in various contexts.

Fusion

The process of integrating or merging different elements, ideas, or technologies into a single unified system, often used in science and technology contexts.