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Question
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.
Answer
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