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

question 67

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 exercise price of the option, what premium should be paid for this option?

• A)$2.2339 per $1,000 of bond option purchased.
• B)$4.0275 per $1,000 of bond option purchased.
• C)$2.2752 per $1,000 of bond option purchased.
• D)$2.2156 per $1,000 of bond option purchased.
• E)$3.8211 per $1,000 of bond option purchased.

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Definitions:

Higher Needs

Refers to advanced stages of human motivation beyond basic physiological needs, emphasizing self-fulfillment and personal growth.

Deficit Needs

A concept in Maslow's hierarchy of needs that refers to the basic requirements for physical and psychological well-being, such as food, safety, and belonging.

Declining Percentage

A decrease in the proportion or ratio of a quantity relative to a whole or to other relevant quantities over a specified period.

Self-Actualization Theory

A concept in humanistic psychology that represents the realization of a person's potential, self-fulfillment, seeking personal growth and peak experiences.