Which is the correct price of the zero-coupon bond

Reference no: EM132821337

Question - A market risk manager seeks to calculate the price of a 2-year zero-coupon bond. The 1-year interest rate today is 10.0%. There is a 50% probability that the 1-year interest rate will be 12.0% and a 50% probability that it will be 8.0% in 1 year. Assuming the risk premium of duration risk is 50 bps each year, and the bond's face value is EUR 1,000, which of the following is the correct price of the zero-coupon bond?

Reference no: EM132821337

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