Question: Priscilla will make a 2-year investment using two consecutive 1-year $500,000 zero coupon bonds. The maturity proceeds of the first zero coupon bond will be

Priscilla will make a 2-year investment using two consecutive 1-year $500,000 zero coupon bonds. 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 2.89% and 3.98% p.a., respectively (annual effective rates. Note that any surplus funds after one year can be invested for one year at a rate of 3.86% p.a. b) What annual rate of interest will Priscilla earn on this 2-year investment? Round your results to five decimal places. a. 0.07013 b. 0.06980 c. 0.03431 d. 0.03447

Answer must be exact (cannot be different due to rounding errors) Thanks!

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