The correct answer is c. 5.5%.

Here's the step-by-step calculation:

1. The yield to maturity (YTM) of a zero-coupon bond can be calculated using the formula:

YTM = [(Face Value / Price)^(1/n)] - 1

where Face Value is the bond's face value, Price is the bond's current price, and n is the number of years to maturity.

2. In this case, the face value is $100, the price is $89.68 (for the two-year bond), and n is 2.

3. Plugging these values into the formula gives:

YTM = [(100 / 89.68)^(1/2)] - 1

4. Calculating this gives a YTM of approximately 5.5%.

So, the yield to maturity for the two-year zero-coupon bond is closest to 5.5%.

Question

The correct answer is c. 5.5%.

Here's the step-by-step calculation:

1. The yield to maturity (YTM) of a zero-coupon bond can be calculated using the formula:

YTM = [(Face Value / Price)^(1/n)] - 1

where Face Value is the bond's face value, Price is the bond's current price, and n is the number of years to maturity.

2. In this case, the face value is $100, the price is $89.68 (for the two-year bond), and n is 2.

3. Plugging these values into the formula gives:

YTM = [(100 / 89.68)^(1/2)] - 1

4. Calculating this gives a YTM of approximately 5.5%.

So, the yield to maturity for the two-year zero-coupon bond is closest to 5.5%.

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