Use the Following Information for Questions

Multiple Choice

Use the following information for questions
A bank has an obligation of $750 at the end of the first period and $550 at the end of the second period.It also has $1,528.93 to invest and can choose between zero-coupon bond or the coupon bond.The coupon bond matures in two years, pays an annual coupon of $100, and has a balloon payment of $1,400.The zero-coupon bond has a balloon payment of $1,610 at the end of the second year.The default-free yield on a one-year bond is 10%, and the annualized yield on a two-year bond is also 10%.
-Suppose the interest rate at t = 1 can be 8% or 12%. What will be the bank’s equity if it invests in the zero-coupon bond Ans. $ for 8%; $ for 12%) ?

A) $350.74; $368.93
B) $231.48; $196.43
C) $231.48; $350.74
D) $178.26; $196.43
E) $196.43; $368.93