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

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.

Correct Answer:

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