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

question 89

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.
• E)11.53 percent.

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Definitions:

Variance

A measure of the dispersion or spread of a set of data points, reflecting how much the data points differ from the mean.

Binomial Experiment

A statistical experiment that fits the binomial distribution; characterized by having a fixed number of trials, distinct outcomes (success or failure), independence, and constant probability of success.

Variance

A measure of the dispersion or spread of a set of values, indicating how much they differ from the average of the set.

Sample Size

The number of observations or data points collected in a sample from a population for analysis.