1. Cindy will make a 2-year investment using two consecutive 1-year $500,000 zero coupon bond. The maturity proceeds of the first zero coupon bond will be rolled over into the second zero coupon bond. The purchase yields for the two 1-year zero coupon bond will be 2.66% and 4.2% p.a., respectively. Note that any surplus funds after one year can be invested for one year at a rate of 3.86% p.a.

d) Which of following statement is correct?

a. The return rate of Cindy's investment must be higher if the yield rate of first zero coupon bond (i.e., 2.66%) is lower

b. The return rate of Cindy's investment must be higher if the surplus funds reinvestment rate (i.e., 3.86%) is lower

c. The return rate of Cindy's investment must be lower if the yield rate of second zero coupon bond (i.e., 4.2%) is higher

d. None of above statement is correct