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

question 2

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.
-What is the yield to maturity for the two-year bond if held to maturity?

• A)11.00 percent.
• B)10.00 percent.
• C)13.54 percent.
• D)11.60 percent.
• E)10.40 percent.

---

Definitions:

Menopause

The period in a woman's life, typically between 45 and 55 years of age, when menstruation ceases.

Depression

A clinical condition characterized by a severe and prolonged feeling of sadness, hopelessness, and a lack of interest or pleasure in life.

Context

The circumstances or background that surrounds and gives meaning to an event, statement, or idea.

Word

A single distinct element of speech or writing, used with others (or sometimes alone) to form a sentence and typically shown with a space on either side when written or printed.