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

A) $0.2143 per $100 of bond option purchased.
B) $0.4420 per $100 of bond option purchased.
C) $1.2768 per $100 of bond option purchased.
D) $0.2321 per $100 of bond option purchased.
E) $1.1652 per $100 of bond option purchased.