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

question 112

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.
-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)$84.00.
• B)$85.99.
• C)$86.21.
• D)$85.74.
• E)$85.96.

Distinguish between what confidence intervals tell us about population parameters versus the samples themselves.

Understand the implications of different levels of confidence (e.g., 90%, 95%, 99%) on the width of confidence intervals.

Apply the concept of margin of error in the construction and interpretation of confidence intervals.

Recognize the correct interpretation of confidence intervals among common misconceptions.