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 coupon bond Ans. $ for 8%; $ for 12%) ?

A) $229.63; $247.82
B) $247.82; $229.63
C) $229.63; $198.22
D) $198.22; $247.82
E) $198.22; $198.22