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 $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.
-What is the yield to maturity for the two-year bond if held to maturity?

A) 11.00 percent.
B) 10.00 percent.
C) 13.54 percent.
D) 11.60 percent.
E) 10.40 percent.