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.

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?

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.

Quizplus · Accepted Answer

The Answer of 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.

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