NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Fixed Income Securities (NISM XXI-A)
A one-year zero-coupon bond with a face value of Rs 10,000 is bought at Rs 9,400 and held to maturity. Approximately what is the yield to maturity, rounded to two decimals?
The yield to maturity is approximately 6.38%. The gain is Rs 600 over a one-year holding, and dividing it by the purchase price of Rs 9,400 gives 6.38%. Using the Rs 10,000 face value as the base would wrongly give 6%.
- A6.00%
- B6.38%Correct
- C6.82%
- D5.64%
Explanation
Return = (10,000 - 9,400) / 9,400 = 600 / 9,400 = 6.383%. Dividing by face value gives 6.00%, which uses the wrong base. The purchase price is the investment base, so the yield is 6.38%.
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