NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Fixed Income Securities (NISM XXI-A)
A zero-coupon bond of face value Rs 1,00,000 matures in 2 years and is bought at Rs 82,645 (approximately). What is the yield to maturity, compounded annually?
The yield to maturity is 10%. A zero-coupon bond of Rs 1,00,000 maturing in two years discounted at 10% gives 1,00,000 divided by 1.21, about Rs 82,645, matching the purchase price. Other rates give prices that differ noticeably.
- A9%
- B10%Correct
- C11%
- D12%
Explanation
Price = 1,00,000 / (1+y)^2. At y = 10%, 1.10^2 = 1.21, and 1,00,000 / 1.21 = 82,644.6, which matches. At 9%, price would be about 84,168; at 11%, about 81,162.
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