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.

---

Definitions:

Hot Seawater

Seawater that has been heated, often by geothermal activity under the ocean floor, impacting marine life and ecosystems.

Columnar Joint

A geological structure where molten rock cools and contracts to form a pattern of polygonal columns, typically hexagonal in cross-section.

Slate

A fine-grained, foliated metamorphic rock derived from shale, characterized by its ability to split into thin, durable layers, commonly used in roofing and flooring.

Fault Scarp

A step in the landscape caused when fault movement offsets Earth’s surface.