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

question 15

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.
-Given the expected one-year rates in one year, what are the possible bond prices in one year?

• A)$912.40 and $922.32.
• B)$857.27 and $866.93.
• C)$734.90 and $751.56.
• D)$896.06 and $905.80.
• E)$802.92 and $820.47.

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