NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Fixed Income Securities
A bond with face value Rs 1,000, annual coupon 9% and exactly 2 years to maturity is priced to yield 10% per annum. What is the approximate price today?
The price is about Rs 982.64. Discount the Rs 90 first coupon at 10% for one year and Rs 1,090 at 10% for two years, giving roughly 81.82 plus 900.83. Because the coupon is below the yield, the bond sells at a discount to its face value.
- ARs 982.64Correct
- BRs 1,017.36
- CRs 1,000.00
- DRs 964.30
Explanation
Price = 90/1.10 + 1,090/1.21 = 81.82 + 900.83 = 982.65, about Rs 982.64. Check: coupon below yield means a discount to par. Rs 1,017.36 is a premium, which would be wrong since coupon is less than yield. Rs 1,000 assumes par. Rs 964.30 discounts only at wrong rates.
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