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Question
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.
What is the yield to maturity for the two-year bond if held to maturity?
A. 27.99 percent.
B. 13.54 percent.
C. 29.95 percent.
D. 14.00 percent.
E. 11.53 percent.
Answer
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