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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The ability of an individual or economy to produce goods or services at a lower opportunity cost than competitors, leading to more efficient trade and production.

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