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

Multiple Choice

An FI manager purchases a zero-coupon bond that has two years to maturity.The manager paid $76.95 per $100 for the bond.The current yield on a one-year bond of equal risk is 12 percent,and the one-year rate in one year is expected to be either 16.65 percent or 15.35 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) $85.22 and $86.25.
B) $85.73 and $86.69.
C) $85.22 and $86.69.
D) $85.73 and $86.25.