Priscia 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 2.81% and 3.63% 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.

0.03223

b.

0.06550

c.

0.03234

d.

0.06572