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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Fixed Income Securities

A 2-year bond with face value Rs 1,000 pays an annual coupon of 8%. Its yield to maturity is 10%. What is the approximate price of the bond (coupon paid at end of each year)?

The bond's price is about Rs 965.29. Discount the Rs 80 first coupon at 10% for one year and the final Rs 1,080 for two years, then add them. Because the coupon is lower than the yield, the price is below face value.

  1. ARs 965.29Correct
  2. BRs 1,000.00
  3. CRs 1,034.71
  4. DRs 920.00

Explanation

Price = 80/1.10 + 1,080/1.21 = 72.73 + 892.56 = 965.29. Since the coupon is below the YTM, the bond trades at a discount. Rs 1,034.71 would result from a YTM of 6%, not 10%.

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